CapitaLand Investment Limited (9CI.SI) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to CapitaLand Investments Financial Results Briefing for half 2022. I'm Grace Chen, Head of Investor Relations for CapitaLand Investment, or CLI. Before we know it, we are more than halfway through the year. And in just a moment, we will invite our group CEO, Mr. Lee Chee Koon; and group CFO, Mr. Andrew Lim to share with you how we have done for the year so far. And our CEO is overseeing CLI's various key businesses are also here to answer your questions. And today, we are very happy to be joined here at our broadcast venue at Capital Tower by analysts from various research houses as well as members of the media. They will be asking questions during the Q&A later. And if you're watching this broadcast, you are also very welcome to send in your questions by typing in the Q&A box at the bottom of your screens. And without further ado, I would like to introduce the members of our panel today. So first and foremost, we have Mr. Lee Chee Koon, CLI's Group CEO. Beside Chee Koon is Mr. Andrew Lim, CLI's Group CFO. Next, we have Mr. Jonathan Yap, CEO of CLI's Listed Funds; Mr. Kevin Goh, CEO of Lodging and The Ascott Limited. Moving on to my left, we have the heads of our Real Assets teams. Mr. Simon Treacy, CEO of Private Equity Rail Estate; as well as Mr. Patrick Boocock, our CEO of Private Equity Alternative Assets. And bring us firsthand news from China, a very core market to us, we have Mr. Puah, Tze Shyang, CEO of China, joining us virtually from Shanghai. I would now like to invite Mr. Lee Chee Koon to address us.

Morning, everyone. So nice to see so many of you in person. At least I don't have to speak into the camera, again. I mean, in the last 2 years, many of the briefings, we're just talking directly into the camera. I think the darkest days of COVID-19 that affected many of us in the corporate world and the personal life should be behind us. Clearly, we are all quite hopeful when the year started, when the global economy started to open up, countries started to lift restrictions and we actually see the incomes and portfolio actually performing quite well across the various asset classes and markets. Well, shortly into the early parts of the year, we started to see things getting a little bit jittery, first with the Russian/Ukraine conflict, and then the Feds and the various central banks around the world started to lift interest rates, I think, faster than many of the economies have predicted or were prepared, at least towards the end of last year. And of course, the other thing that threw a spanner in the works was China implementing a strict COVID zero policy, especially in the Shanghai, which led to a major lockdown. And that's the backdrop that we were dealing with in the first half of the year. Despite that, I think we produced a credible set of results. Operating PATMI has strengthened, and that's largely due to the increase in terms of the fund management fees and also the improvement in the lodging business. I still recall in the many conversations that I have with the investors and the analysts last year, when we were doing the restructuring asking whether the lodging business should be part of the CRI business. But I think with the recovery that we are seeing in the lodging business with the greater signings and the recent acquisition of Oakwood done by Kevin's team, I think it's starting to demonstrate that -- it delivered strong fee income, and we'll continue to do so as the lodging sector continues to improve, and it will fit nicely to the bottom line. I think from a results perspective, overall, I mean our numbers could have done better if not for 2 reasons. One is really around the COVID zero policy in China, especially in Shanghai, where we have the biggest exposure that affected the contributions from the lodging sector. Secondly, in terms of the rebates that we need to provide for to help the retail -- the tenants, especially in our shopping malls, but I think that's largely going to be one-off as the economies start to open up and the Chinese government taking a more enlightened approach towards the management of COVID and COVID -- and around all the restrictions, we believe that the sector will continue to improve. The other reason, okay, is largely around the capital recycling. First half last year, we recycled about SGD 13 billion, largely due to a recapitalization of the Raffles City portfolio of SDD 13 billion, that's quite significant. This year, so far year-to-date, we have done about SGD 1.6 billion. I think we are still quite confident that we should be able to deliver the SGD 3 billion target that we have set out to do. So there's quite a bit of work to catch up in the second half of the year, apart from capital recycling. We will continue to focus in terms of the execution of the fund strategies, happy to highlight that we have strengthened the teams at the country levels to look at off-market type deals. And Simon has also built up capital raising teams over the next few months, 1 to 2 months, we should be able to share more fund products. And also in terms of the acquisition, I just want to highlight that, I mean things do take time to cook. So just be patient with us, but definitely, things are happening. And before I pass the mic to Andrew who will go through the numbers in greater detail, I just want to -- I mean something that's not news to us. We are entering into a very volatile environment. Things are extremely uncertain. We have economies and many of the major firms are predicting that we will go into recession. Interest rates have gone up. Cost of capital have gone up for many, many companies. And that's why we have to be a lot more careful in the way we look for deals. We are seeing corrections in the public markets, and we have not seen the same level of correction in the private market side. So we are definitely on the lookout for deals, but we'll be very careful in the way we pursue growth. Okay, growth is still at the top of our mind, but we are not going to pursue growth for growth's sake. Growth must be done on the basis of how we can create value for the LPs, for unitholders? And how do we create long-term value on an earnings per share basis for CLI investors? So that's really the message that I hope to be able to share with all of you. So without further do, I pass it to Andrew will go through the details, and we can have more Q&A later. Thanks, Andrew.

Thanks, Chee Koon, and good morning, everyone. Just a quick one. First of all, thank you for joining us this early with apologies to CDL. We'll try to get you away so that you can attend CDL. I recall last time we had the same problem. So we seem to keep converging. This must be an auspicious date that we keep picking. I'm actually reminded that we're not even 1-year-old. So to Chee Koon's point, if you think about the last 10, 11 months, a lot has happened, and we are executing as quickly and as sensibly as we can. But at the same time, very mindful of the very rapidly evolving macroeconomic environment. So as you look at our results and you look at what we're focused on, it's actually helpful for me to anchor back to the fact that at this time last year, we were still CapitaLand, we're not even CLI yet. So we are still early days in our journey. Okay. So very quickly on a summary of 1H, To us, this was a half of 2 halves, right? Q1, very strong, lots of evidence of recovery coming out of pandemic, operating environments, normalizing, travel opening up. And then I think everyone was hit by a lot of events, conflating to produce a difficult elevated VUCA environment. As Chee Koon mentioned, rapid inflation, supply side, demand side coming together, unprecedented. None of us have seen this in over 30 years. Conflated by geopolitical concerns, Russia-Ukraine, adding to energy, adding to food shortage. And then China, having to deal with COVID, having to deal with 20th Party Congress, having to deal with geopolitics. And as you can see from the results, China affected us. I'll give you a bit more color as we get into it. I go straight to the overview of performance. So again, our focus on operating PATMI because this is what we are focused on, ultimately, and delighted to report that operating PATMI year-on-year up 31% principally on the back of our fee income, and that gives us confidence that we are on the right track. So on the fund management side, I'll give you some color later, but also equally on the lodging management side, both of our principal fee income generators generated strong year-on-year growth in operating PATMI. On the EBITDA and PATMI side, we see 30-plus percent drop, essentially coming from fall off in capital recycling, right? And as Chee Koon mentioned, SGD 11 billion last year, all-time high, coming back down to a more normalized run rate of at least SGD 3 billion. And then exacerbated by, as I mentioned, the lost quarter in China, where we essentially were not able to recycle any capital. So the zero capital recycle in China in 2Q despite a very healthy planned amount of recycling at the start of the year. So again, something for us to catch up on, hopefully, if China approaches a more normalized operating environment in the second half of the year, it will give us an opportunity to catch up on some of that planned recycling that we have. On the capital stack and the balance sheet, I think very stable, nothing really to report other than the market has continued to support us. We are trading now at a healthy 1.4x NAV, gives us share currency to go out and look for opportunities if this difficulties -- if these difficulties persist and start to afflict other asset owners, and a year-to-date shareholder return of 25%, which we are honored and blessed to continue to enjoy. Balance sheet, net debt to equity, cash and available, undrawn facilities all there to be able to deploy when we find something that we feel is worthy of our capital. As I mentioned on the focus on fee income, we are a much more diversified business than we were pre reorganization. So our view as a diversified REIM is to have as balanced a sector contribution as we can. And as you can see today, out of the SGD 873 million, it is a fairly even split between the 4 key sectors. And for those of you who have been following us before, you will know that in the past, this was not always the case. So we are striving to achieve a well-calibrated balance across sectors. And I think we are getting there. I mentioned the focus on fee income growth. And again, delighted that both on lodging management and on fund management, you see very healthy year-on-year FRE growth and on LM growth. On the execution side, the entire team is very focused on delivering on what we set out to do. We were still able to transact over SGD 4 billion worth of assets, both on the buying and the selling. Despite difficulties in China, we launched our first-ever RMB fund. And strategically, I can tell you this is incredibly important for us in light of what we see evolving in China and Tze Shyang and Chee Koon can give you some more color on this. And obviously, on the capital management side, as I mentioned, we will continue to remain very prudent on making sure we have dry powder to deploy as needed. Okay. Second half, the focus is on 2 key areas. One is to continue to be very steadfast in how we execute. On the fund management side, 5 of our 6 REITs were active in first half. We want to continue that. CLCT, again, difficult first half in China, very eager to get going, and we hope to be able to get her going in the second half. On the PERA side, Simon, Patrick, traversing the world, developing partner relationships and preparing fund product for launch when the environment is conducive for us to do so. So we managed to get actually quite a few new funds underway in the first half. We were 4x as more active in the first half of 2022 compared to the first half of 2021 on the fund side. So there is evidence that we are still able to generate very good demand, very good interest across our LPs, cultivating new capital. We are just faced with a difficult environment, and people are going to be much more selective, much more circumspect before they put capital to work. I think that affects not just us but all REIMs. Lodging management sector tailwinds are strong. We'll show you how we have done in the first half. Not only were we able to grow organically, we were able to acquire a very strong healthy platform that we believe is highly complementary to our existing service residence business. And as we mentioned, capital recycling, whilst not hitting the highs of last year, which were extraordinary, we are on track to deliver the run rate of at least SGD 3 billion. The other part of the strategy for the second half of the year, I think, as Chee Koon mentioned, is 2 pieces, right? Be patient, be prudent on capital deployment. We are extensively stress testing every deal that comes to investment committee to ensure that all of the uncertainties around interest rates, around inflation, around cap rates when we are entering, when we are exiting, they're extensively stress tested to ensure that we're able to meet the respective hurdle rates of our LPs and our funds as well as to be DPU accretive over time for our REITs, right? It is about capital management. It is about being a steward to third-party capital. We are not in the business to grow for growth's sake. So when you look at our SGD 86 billion FUM, some of you may say, "Hey, it's flat. It didn't move." I mean there's a reason for that. We were being very careful about deploying only when we felt it is right to do so. As I mentioned, we have ample dry powder ready for deployment, Net debt to equity is 0.5x. That gives me roughly SGD 2 billion per ton of net DE. So if I go from 0.5x to 0.7x, I've got SGD 4 billion of headroom that we can use to deploy for the right opportunities. We have introduced a concept called embedded FUM, and we will talk a little bit about that later. We have about SGD 3.5 billion to SGD 3.7 billion of what I call, embedded FUM, which is basically FUM that is already spoken for and will materialize in the near future. And then we will proactively manage the balance sheet to make sure that the capital is working as effectively as it can for us. Our targets of capital recycling SGD 3 billion annually, 160,000 lodging keys under management by 2023, SGD 100 billion organic growth in FUM by 2024 are all in place, and we are confident we will meet each and every one of those. Okay. I'll cycle quickly through some of the high numbers. So here, you see the breakdown of PATMI, operating PATMI as I mentioned, up 31%. We're very proud of this number. It is mainly due to both FM fees coming out of carry on 2 of our funds as well as growth in recurring income, both on our REITs and our funds. And then particularly on the lodging management side, that belief and confidence that lodging was catching a nice tailwind is coming to pass. We see very healthy growth, 44% up in RevPAU on a year-on-year basis. Both of these fee income generators are contributing nicely to the core growth in operating PATMI. Offset, unfortunately, through portfolio gains. Last year, SGD 11.3 billion by first half. We did this at about a 10.5% premium to fair value, this was last year. We were -- as Chee Koon mentioned, the RC6 was the bulk of that. But we also sold Olinas we also sold Galaxis, converting Galaxis into FUM and converting the RC6 on retaining that as FUM as well largely. This year, essentially, it's been 79 RR, 1.6 billion as well as JCube, which was a noncore asset, but sold to our sister company in the hopes that one day we will get it back. Now the premium is no less, is 11%. So we are continuing to sell well. We are continuing to sell at a disciplined rate, not generating capital recycling for the sake of it, right? We are not a distressed seller by any stretch of the imagination. But as you can see, coming off the high SGD 438 million last year on that extraordinary level of capital recycling, coming back down to a more run rate half year level, the portfolio gains naturally has come off. And as a result, the total PATMI, which is all cash, is down 38% year-on-year to SGD 433 million, still a very healthy number. Okay. Running across the EBITDA stack. I will give you a bit more flavor on our FRB operating contributions. It now contributes 31% to overall EBITDA. That is up year-on-year. Again, you want to see that trajectory. From a geographic perspective, the thing that strikes out it means that China is down to 12% contribution. For fiscal '21, we were at about 28%, 29% contribution from China, which is roughly where we would like it to be, around 1/3. So you can see that China really affected us first half of 2022, last quarter, basically very little got done. And then, as I mentioned earlier, on the asset class, you see well-calibrated, increasingly diversified portfolio, which is what we aim to be. Okay. This again breaks down of EBITDA gives you some more flavor. I won't get into too much detail. But really what you want to see on the operating EBITDA side, left-hand side is that the FRB operating PATMI starts to replace the investment or the balance sheet operating PATMI. And we were almost able to get there. So we want to see operating PATMI coming from our fee income business. So we see that rising from SGD 135 million to SGD 225 million year-on-year, up 67%. And you really want to see that offsetting your balance sheet operating PATMI, which has come up from SGD 599 million to SGD 505 million. So we are almost there. On a year-on-year basis, we went from SGD 734 million to SGD 730 million, we dropped about SGD 4 million in operating EBITDA. But the idea is to replace balance sheet, operating EBITDA with fee income operating EBITDA, and this is something we will continue to strive towards. Driving into FRB. I think the numbers speak for themselves, Steady growth in listed funds management, private funds management, strong growth on event-driven performance fees coming out of Vietnam and Singapore. Lodging management, tailwind recovery, all of these showing healthy year-on-year growth and then property management as a supporting relatively noncore part of the FRB stack. Overall, FRB income up 16% year-on-year. Capital recycling. So again, as I mentioned, we are run rate capital recycling SGD 1.6 billion at the half year mark. A fair amount of activity going on, total transaction value of SGD 4.1 billion, of which 93% of that generated FRE. So this is, again, what we are in the business of doing, investing smartly, divesting when it makes sense, and if we can, retaining that FUM moving from one product to another product and generating event-driven FRE in the process, and it's exactly what we are able to do. Increased investment activities by CLI's private funds. So this is what I've mentioned. Last year at this time, we only had 2 funds that were active. I think it was the Asc REIT fund and one of our Indian logistics fund. This year, first half, we have 4 funds active. We have COREF, we had ASRGF, we had SAVE our new service residence Fund, and we had the India Logistics Fund also active. So there is activity ramping up, the pace of which that ramp-up is going to be dictated by the economic environment in the second half of the year. But again, we are very focused on executing and executing well. Okay. Cap management, I think nothing much to say here. As you see, it's a strong balance sheet with capital ready to deploy. Okay. In terms of the contribution from FRB and REIB, so our fee income business and our balance sheet business, this is the proportion change that we are striving towards. On an EBITDA basis, from this time last year, we were at 18% contribution from FRB, now moving to 31% at this point in 2022. On a PATMI level, the shift is more pronounced. We went from 31% to now roughly a 50-50 contribution split. And for those of you who are doing your SOT piece, SGD 1 of FRB PATMI is not the same as SGD 1 of REIB PATMI because the Street values that very differently. So this is exactly what we are trying to accomplish, moving the PATMI stack from balance sheet to fee income. I'll spend a bit of time here on fund management, quite a lot to unpack. I'm sure all of you are focused on the FUM number is flat, what's going on? There's quite a bit going on. So let's look at the REIT side first. REIT side was up SGD 2 billion, SGD 58 billion to SGD 60 billion, and the color is in the subsequent slides. Now that SGD 2 billion was offset by the PERA side, which was down SGD 2 billion. And essentially, what caused that SGD billion drop in FUM, 3 things. One, we exited our Vietnam fund, okay, that was about SGD 0.7 billion. Now that Vietnam fund exited at a very healthy IRR that generated substantial FRE for us, which you see on the right-hand side of the slide, where the event-driven private equity funds -- event-driven going up from SGD 6 million to SGD 43 million. So this is exactly what you want to be doing in the PERA business. You want to be exiting at the right number, at the right time and generating substantial carry for your LPs and for ourselves. The other thing that happened was a net divestment. This was 79 RR that was divested to 2 products. So essentially, we retain overall FUM on 79 RR. It's just that some of that FUM, SGD 800 million out of the SGD 1.2 billion went to CICT. So PERA's loss was a sweet gain. So it went actually from the SGD 28 billion to the SGD 58 billion, moving from PERA to REIT. And then the last amount is actually an FX change because the RMB depreciated about 3 -- north of 3% for the year first half. And when you translate a lot of our China products into Sing dollar, we dropped about SGD 0.8 billion of FX translation. So on a Sing dollar basis, you can see there's the reason why the PERA FUM is essentially down, but there's -- there are 3 good reasons why that is the case. Now let's look at this thing called embedded FUM. So we've taken the SGD 86 billion, and what we've done is we've looked at the available capital that we have committed from the LPs that is ready for deployment, and that's roughly about SGD 1 billion to SGD 1.2 billion, SGD 1.3 billion. We add the relative gearing levels that each fund is able to deploy. And that gets us to an embedded FUM of about SGD 3.5 billion. In addition to that, some of our REITs have announced transactions that have yet to close. So for example is A REIT on Philips, CLMT on logistics properties that was announced but yet to close. So that is not counted as FUM as of today, but I think that's embedded because it will be FUM in the not-too-distant future, barring something very strange happening. So on the REIT side, I can add about SGD 250 million of announced, but not closed acquisitions to that SGD 3.5 billion of PERA embedded FUM. So altogether, we have about SGD 3.7 billion of incoming FUM, if you will, if that makes sense to you. Hopefully, it does. On the right-hand side, again, gives you a flavor of how the FRE is taking shape. So we are driving FRE growth. Even though FUM is staying relatively flat, our funds and our REITs are starting to become more profitable because the new funds that Simon and Patrick are putting in place have much more market-oriented fee structures. And, at the same time, we are able to deliver event-driven fees, although some of you will -- I will agree with you that event-driven fees need to be proven over time to become quasi recurring. So I understand if you'll take the event-driven with a pinch of salt, I would not argue with that. But on the recurring side, you can still see growth on recurring income from REITs going from SGD 117 million to SGD 125 million, growth in recurring income from private funds going from SGD 41 million to SGD 42 million. So the highest quality level of our FRE remains growing. Our FRE to FUM is up from 50 to 52 basis points, and our EBITDA margin is up from 54% to 61%. So the main metrics that we look at to measure the health of our funds management business are pointing in the right direction. Okay. Just some flavor here. I won't spend too much time, but look through these. These are our REITs, 5 out of our 6 REITs active in first half. Despite the challenge for core product, given higher rates, higher inflation, 5 out of our 6 REITs with the understandable exception of CLCT, were active. And on the private fund side, we were able to generate SGD 830 million of total gross investments. Multiple funds were active and most notably, our first RMB fund, which is the second one from the right, capitalizing on our new RMB license strategically, we can deal with this in Q&A. This is very important for us as a business when it comes to being able to continue to grow our China strategy and our China funds management business. So I think we have lots more to come from the RMB capital pool in China. I'll let Tze Shyang and Simon and Chee Koon share more about that. And then you see the successful exit on the CV CVF fund, over 34% IRR and an equity multiple of north of 2.5x, which generated very substantial carry fees for us. Okay. Lodging management, I won't spend too much time. Kevin is here. He will take you through a lot of this, but all the tailwind metrics are there. FRE is up 37% year-on-year. We continue to sign record number of new keys, whilst opening keys that we signed -- have been signed 2 to 3 years ago. You add the Oakwood acquisition onto that, and we are already very close to the 160,000 keys in the system by 2023. So I think it's safe to say that Kevin is cautiously optimistic that he will hit his 160,000 keys long before his stated target. I'm sure Chee Koon is going to give him a new one very soon. Okay. Look, you see higher daily rates up 21%. Occupancy is up 9%. This generates that 44% increase in RevPAU. All of our geographies are showing, reflecting that tailwind with the exception, again, of China. And this is where you see last quarter in 2Q across the board, across many of our sectors and exposures in China. I won't touch on Oakwood. Okay. And then very quickly on the balance sheet side of things. NAV dropped by 0.7. This is largely due to 2 things: one, the dividend we paid, SGD 700 million, and secondly, FCTR, so currency translation moved us down by about SGD 400 million. So we're back into the RMB drop again after making all of that back in the last year or so. Core market updates. I think the CEOs are here, Tze Shyang on the phone, so I won't go too much into it. We can give you some color on operating environments, retail, office, new economy and so on and so forth for China, for India, and then for our other markets as well. Okay. We're spending a lot of time on sustainability. You can see a very healthy section. To round out our IR debt, our march towards our 2030 S&MP targets continues. In some cases, we are way ahead of plan. For example, in energy and water intensity. But in other cases, we are still -- got some serious work to do, most notably in percentage of renewable energy. I think that's something that many companies are focused on. We have a new CSO. I hope many of you have met him. Vince has hit the ground running. He's already out there talking to our ESG-minded investors and getting the word out about our commitment to embed sustainability into everything that we do. And not wasting talent, we have asked Lynette to look after work with Patrick on thinking about how we can craft fund management products using our strength and our leadership position in ESG. It is one of the events that we think gives us a competitive advantage, not only in greening our business, but also in turning opportunities into management and funds management investment opportunities as well. CSXC was a great success held last month, is a good example of something that has worked really well for us in terms of energy saving. And we continue to remain fully committed on our CSR commitments, helping those in the community who are less fortunate than ourselves. And there are many. Okay. So let me wrap up. Again, apologies for taking too long. As Chee Koon mentioned, 2022, second half, a lot of question marks. We think China will gradually come out of the most difficult period, which was 2Q. There is a timing element to that, obviously centered around Party Congress probably in October, November. Post that, if things go well and smoothly, we think China has a lot of opportunity to make up for lost time, and we want to be ready to take full advantage of that. We are long China, we are strategic China, and we have a competitive advantage in China. We were absolutely focused on growing our fee income business, as you can see. We will maintain our capital management discipline and be ready to take advantage. We will continue to exercise patience and prudence, and sustainability will continue to be a part of everything that we do. Okay thanks, again, Grace.

Thank you, Chee Koon and Andrew. [Operator Instructions] I'll take the first, okay, Mervin had his hands up.

Mervin from JPMorgan. Congrats on the strong operating PATMI performance. Maybe we can start with the funds management business. I appreciate the color on the embedded FUM that sounds quite positive. But I think in the first quarter business update, commentary was the North American investor is a bit more cautious. You're hopeful post reopening China that the fund growth from China will kick in maybe in the second half. Maybe some updates on how investors are feeling at this point in time? Second question is in terms of China. Obviously, some headwinds in the first half, whether you can quantify the impact in terms of tenant, support they have to provide, loss in earnings from, I guess, the lack of travel? And then third question in terms of [indiscernible] expansion, recession risk, how should we be thinking about the revaluation gains by year-end? Should we still expect an uplift given the high earnings this year?

Simon, you want to take the question on funds?

Good morning. Thank you for the question. So from a global investor perspective, looking outside into Asia, specifically China, North American investors being hit by the denominating factor in terms of equities coming down, which is pushing their real asset allocations up towards their benchmarks. That said, they are underweight in Asia, and they're very keen for 2023 to increase their allocations. They're also very encouraged by the CapitaLand platform, which we've been introducing to them over the last 6 months in earnest. The points of difference they see with us is our very strong presence in China and our ability to execute and understand risk. So that is of particular interest. And notwithstanding the noise, there are various investors that will take steps to take this opportunity to exploit the arbitrage in the private market. So overall, we're quite encouraged what 2023 could bring us.

Andrew, do you want to talk about the China? Tze Shyang, can we bring Tze Shyang on?

Yes. Can you hear me?

Yes.

So first of all, on the support. We are looking at a game of 2 halves as Andrew has shared. First quarter, it started really well for operating properties, much stronger than 2021 second half. And then we were hit with unexpected events in the second half. So in terms of operating properties, we are supporting our tenants, okay? We are leveraging what we have learned in 2020 when the COVID struck, and then we have provided for the -- for the month of April to May essentially, these are the 2 months where the impact was greatest for us. If you look at the start of the year, we had sporadic COVID hits to Xian and then to [indiscernible] and later on to [indiscernible] we have no presence. But it was later really in the second quarter that our East China or Shanghai properties was hit. So in terms of headline or topline, actually, happy to share. Our second quarter, in fact, our first half topline were in line with last year. Yes, that did not take a hit. But our operating numbers or operating PATMI took a hit because we provided for the month of April and May in terms of rental rebates. If you look at Wuhan in the 2020, we provided about a month, right, because it was essentially March. Right now for 2022, we are essentially providing about 2 months, which is April and May. That's in terms of what are the impact to the operating seem to be. We are now looking at a reopening from a very desolate second quarter, say, for example, in Shanghai. Right now, we are back to the base, we are fighting traffic to get back to work, okay? And the restaurants and the FMB is again active. So slowly but surely the pools are returning. The sales is improving. So we're looking forward to a more rate during the second half. We don't -- barring lockdowns again, which we don't expect, we think the second half will be a lot stronger. In terms of domestically, the funds flow, I think the liquidity is there and then the domestic capital sources are active looking to deploy. So as Andrew has mentioned, we're very happy, very fortunate that we were able to at least get one of our PATMI RMB launched in the first half. We were, in fact, affected also by the lockdown because we were essentially at home. We can't even get out of our homes, let alone register our various fund initiatives. So second half, and we are cautiously optimistic that we will be able to put forth some of our pursuits and that the special situations, opportunities that we are seeing in China will give us a good pipeline, and then we are looking forward to launching more RMB funds in the second half, again, barring COVID.

Just to clarify, right, the 2 months is for Shanghai. If I'm not mistaken, on a portfolio basis, it's something about -- something around the lines of 1.2. And this is only on retail, if I'm not mistaken.

Yes. So Andrew, you're right. COVID has actually affected our retail properties. In fact, our business park property is very resilient. Rental reversions positive, close to double digit. And then our office, if you look at the slide on China, the office occupancies are also steady. In fact, our retail occupancies are north of 90%, right? It's really because we have provided for rental rebates that our PATMI numbers are affected.

Just additional point on China. I mean China, no matter what we say is still the second largest economy. More than 1 billion population, I would say, the largest in terms of the middle class that generally can spend, strong consumption ability. And we have a pretty diversified asset class team has been around for more than 20 years. Ability to source these reputation-wise, is great, whether it's with the local governments, with the people who work for us, with the banks. I mean therefore since -- ever since the first day, even pre-CapitaLand days, in the [indiscernible] or DBS land days when the CapitaLand started investing in China. We've always completed every single project, developed very deep relationship and trust in the local community. So I do believe that that puts the team in China in a pretty good position to be able to capitalize. There are definitely strong pent-up demand from the local domestic capital to look for quality assets, good portfolio in terms of being able to deploy the capital, that's -- put the capital with managers that they feel comfortable in portfolio that is generally well managed. So I think that's an important point that I want to stress. So China will continue to be an important part. And you will see us leveraging a lot more on domestic capital to help fund the growth of the China business.

On the rebound?

So, Mervin, your question was on second half. Currently, we don't think there will be a material impact to that. So we had to do it for first half informally internally because there's a statement we need to make in our official earnings release. We sampled about 70% of the entire IP portfolio either through our REITs or funds or ourselves. And on a portfolio level, it's flat. Obviously, some selectively down in some China retail. But overall, China is also roughly flat because if you've got a strong business part -- positive reversions as well and DC versions. So China itself, while it's probably being the main concern is flat, and Tze Shyang gave some color. And then the rest of the markets, I mean, Singapore, you guys know well is the place to be right now in terms of investment properties. So we don't see that being an issue second half. And the rest of the world, yes, we still -- we will see some pressures. We have no real evidence of cap rates moving anytime anywhere soon, given the still healthy appetite, as Chee Koon said, on the private side, particularly for people to hold their valuations and want to sell at a high price. There's no desire to -- for distressed sales at this point in time just yet. So transactions being what they are, usually material input to ascertain valuations. We don't see that being a factor as yet. I don't know if anyone else has a comment, Jon?

[indiscernible].

Seems you are -- if you look at our focus on cash, right, we are very focused on cash [indiscernible] delivering an ROE that essentially is cash-based. if I get a 1% increase in fair well, we'll take it, but it's no longer a key component in how we return equity measure return on equity to investors, if that helps.

Louis.

Louis from Credit Suisse. I've just got 2 questions. One is really a clarification. So I noticed that, yes, on the EBITDA basis, 1.2 months of rental rebates from China, I think that caused the REIB operating EBITDA decline. But when I look at the appendix, if I look at the NPI in China, for, I think, office, retail, I think NPI has been flat, but the new economy NPI is actually up. So I just wanted to square the EBITDA decline versus the NPI, which seems to be quite stable or even up. And the second is really more a broader question. I understand that I think Chee Koon and Andrew both mentioned that in the current environment, it's important for CLI to be prudent. At the same time, if I look at some of the other peers, they have still been able to grow FUM AUM. And at the same time, I think Andrew has mentioned that right now, valuations are still holding up, especially in the private markets. So I would imagine that when it comes to divestments, it will be a lot easier as opposed to investments, but both seem to be relatively low at this point in time. So even if we do hit SGD 3 billion, may be closer to 2020 kind of COVID levels versus, say, even in 2019, I think it was closer to SGD 6 billion under the old CapitaLand. So I just wanted to understand if you'll be able to share a bit more color what is actually holding back management when it comes to both the investment side as well as the divestment side?

Okay. Let me take a stab at it. And I'm sure my colleagues may have something to add. So on REIB EBITDA, 2 things have essentially happened. One was rental rebates. So about 1.2 months' worth on a system basis in China retail. The other thing that happened is actually our share of the assets we own, either through funds, REITs or on balance sheet has come down as we are recycling. So there's a lower amount of share of EBITDA, particularly from RC 6, which is quite substantial, as you could imagine. And then you have Olinas coming off, Galaxis coming off year-on-year basis and so on and so forth. So as we are recycling capital, this is the point I made around the operating EBITDA, right, as we are recycling capital and we are losing operating EBITDA from the REIB part of the business, the important thing for us to be able to do is to replace that with operating REIB -- operating EBITDA from the FRB side of the business. So our fee income has to grow to replace the loss of operating EBITDA from REIB as you're converting that balance sheet into FUM. And you are making net investments in platforms, in lodging platforms, in funds management platforms and launching new funds and so on and so forth. So this is not easy to do. But you want to try and continue that process as quickly as possible and get there so that we can seamlessly replace one stack of operating EBITDA with a much more valuable type of operating EBITDA in the eyes of the market, as I mentioned, that dollar from REIB is worth to the market, very different terms to $1 FRB operating EBITDA.

Recycling?

Recycling. Okay. So give you a couple of scenarios. If it's all about China. How -- where we land on asset recycling, honestly is going to be about China, where China -- what China does in the next 6 months. If China continues on this trajectory of gradually reopening, I think we will comfortably pass RMB 3 billion because will be able to catch up. As I mentioned, we have north of RMB 5 billion that had to be deferred because of the last quarter. If we get that back in the second half and we're able to recycle, then we are comfortably past 3, we're maybe into the fourth and the 5s. If China switches off, let's say, until November because of China's Party Congress, then ex-China recycling, we can still get to 3, but it may be one of those years where we just have to take a pause and recognize that this is going to take longer than we had hoped. And then if we get a full recovery and we've got all the tabs are open, the original plan this year was actually a very ambitious amount of capital recycling. So there is a way upside case for which we get a very nice level. But honestly, we are running out of time. We are already in August. If we can settle for the first case where China gets to catch up in some way, then I think we'll take that as a good year and a typical year for CLI going forward. Cho-san, would you agree with that?

So Andrew, much of our assets, recycling plans, as you rightfully put it, they are not -- they're just deferred because of the last quarter. The state of the business environment for second half is still subjected to many things that the government actually has a lot control over COVID zero, geopolitics deleveraging. To some extent, these are all pretty much in the hands of the policy makers and man-made. We do feel that China has a lot of tools, both fiscal and monetary tools to revive growth in the second half. There are some expectations, but everyone is looking forward to some upside for second half. We may not get back to 5.5%, but general consensus on the Street probably between 3% to 4%. So with that backdrop, activities on the investment funds will recover to some extent. Our properties are very well right, okay as Chee Koon mentioned, we have a strong asset management team on the ground, close to 30 years of experience. So robust earnings despite COVID, that's our offering. We still remain confident that if the general market recovers, we should be able to continue and catch up in the second half. We would generally of the opinion that the government is wary of that build that up again. So the broad-based leasing is not likely to happen. But at least the liquidity at the domestic capital sources, they are active. We have a great partnership with one of the largest domestic capital institutional investors last year in recycling and recapitalizing our Raffles City portfolio. We're going to continue to leverage that momentum and we remain confident that we should be able to pick up in the second half.

Louis, just to add another point for perspective. I mean if you look at the China side, the large part of the plan recycling, it's in the retail sector. It's affected by COVID. I mean if you look at the retail in Singapore, post-COVID, you look at how the malls are performing. You look at -- I mean during the peaks of COVID, there were rental -- negative rental reversion types of pressure. There's really no point to rush to recycle or to exit any investment when the environment is not the most favorable because we do want to make sure that we can -- I mean, especially when we know that we have the ability to manage and to lease up the property, there's no need to rush to do something that we do not believe that's in the long-term interest of our investors.

Next question. David.

David Lum from Daiwa. Chee Koon, I want to follow up on a statement you made in your presentation. You're going to be careful in the way you look at deals. I thought all along that was the operating procedure. Is there anything geopolitical, macro or certain red flags and asset classes or countries that make you want to look at deals more carefully now or was that a general statement?

It is more a general statement. But actually, I am of the view that I think if the major economies are right, that we are going into a recession, the interest rates are going to normalize, say, about 3.5%. I do believe that there could be more potential opportunities in some of the asset classes where the cap rates have been low, and there should be opportunities. There's no need to rush to do deals that we believe is not going to cross our investment hurdle. I mean if you look at our portfolio today, it's diversified, extremely cash generative. And if you look at the balance sheet, the health of our balance sheet today is never been better than ever before in the history of CapitaLand, actually position us very well for us to take countercyclical positions. If you -- I mean if you send a bad [ corp ] into CapitaLand and, say, '08, '09 during the great financial crisis, there was good opportunity at that point in time to take countercyclical position because you see asset prices correcting, you see portfolio becoming available. By that point in time, CapitaLand was -- had to deal with many of the commitments on development projects that we had to make sure that we support and see true. And as a result, there was very little ammunition that was available for us to take big positions that could really position us well. And as the economy continues to recover and that really will set us apart from competition. So I want to say is that, I mean, we are entering into a volatile environment. We want to be careful. There's no need to rush and jump, but we want to make sure that when we look at us, deals that can really make the difference, move the needle, and we are prepared to use the balance sheet that I believe can really put us in a much stronger position going to the future. So that's really the context around my comment.

Tan?

This is Xuan Tan here from Goldman. The first question is on ROE. Can you comment a bit on first half run rate and also thoughts on full year ROE? And then secondly is on FUM growth. How confident are you to get to about 10% this year? And is it more likely to come from REITs or private funds?

Thanks, Xuan. ROE, if we can get to about an 8% cash ROE, I think would say that, that in this current context will be pretty decent. Let's see how the second half turns out. In terms of FUM, I would say, again, similarly, whilst we would try to aim for a 10% organic growth, I think this year might be challenging given we've already lost 1 quarter, a lot of that FUM growth is anchored by China. And if we -- unless we get that nice upside scenario where everything opens up very quickly, we may have to defer some of that growth to first half of '23, post-party Congress. So the pipe is there. The opportunities are there, the capital is there, it's just that the environment is not conducive enough for us to execute. And to Chee Koon's point, actually, we don't see the need to rush because you can go in too early in these things. And if you bid patient and you allow the situation to evolve and if we believe things are going to get worse, macroeconomically before they get better, then logic dictates that we should win. They just keep the powder dry. It's continue to execute, demonstrate that we know what we're doing in terms of operations, sell when we can, which we have been doing and recycle capital when we can. And if we don't hit our target, that's fine. If you have a good reason why it doesn't mean that we don't going to make up for it data down the road. And again, we've done this before. We'll do this again at Investor Day. If your time it right, you actually can reap the benefits for many years going down once you have a crisis that is not of your own doing, but the key is to take full advantage of that prices. And part of that -- a lot of that actually is timing based. So particularly reaching patients, Board is happy to be patient. What is important is we keep the powder dry and we keep our shareholders and stakeholders informed as to what our plans are. So that when we do pull the trigger, and everyone understands why we've done that.

Derek.

Derek From DBS here. I just have two questions. One is on -- back to China. I'm just wondering whether in terms of investors' appetite and type of assets that you'd like to invest in, has it changed like since like 1 year ago because of how China has politically, I think the whole risk profile of China has changed. So I'm just wondering what are you hearing on the ground in terms of your investor feedback? Then secondly, if I can, a is a bit sensitive, but if there's a strategic opportunity in Singapore, would the sponsor be happy to lend your balance sheet, for example, let's say, your listed platforms or private platforms can't take on your own, hypothetically?

Okay. On China, I think investors are generally quite keen to support deployment of assets that are in line with the broad policy direction of the Chinese government. So whether it is retail assets that caters to mass consumption business parts that continue to drive manufacturing ability, R&D type abilities, life sciences type project, data centers, logistics that helps, especially cold chain logistics type that helps in the overall development of the economy or rental housing that generally caters to demand for shop fall for housing. I think that's generally in line that if you look at [ CLI ] that's generally the asset classes that we are in. In terms of residential sector, typically the build to sell the things that all capital used to do now is done our biosystem company that is something that many of the investors, especially foreign investors are a bit more careful. I mean a lot of -- especially foreign investors, they are not sure how the boycott of the mortgages and the extent of the issues would be happening. But actually, you see the SOE or stepping up to the plate and doing that. But we are not in that space. So we are generally not so worried about that. And then in terms of your second question. I think having the balance sheet gives us the flexibility to be prepared to support the vehicles, whether it is the REITs on the private funds to take strategic positions. And we are going to use our balance sheet, we do want to make sure that it must be able to drive long-term shareholder value for the CLI investors. Because if we're going to use the balance sheet just to support the vehicles. And in the end, it doesn't benefit the CLI investors, I think the investors are going to be very unhappy with us. So we will be prepared to consider to use in joint partnerships so that in India, we create not just value for either the LPs or for the unitholders but also for the CLI investors. The other thing not to forget is that when the whole restructuring was done, we created a CL ecosystem, where the CLI and there is CLD. So where there are interesting opportunities that could happen, you can see us working in partnership with CLD folks to undertake some of the development-type projects also their portfolio where they may development and we take the income-producing asset. So all these are possible.

We'll have next question from Joy. And then we'll move on to the right-hand side of the hall.

Joy from HSBC. Two questions from me. First, just to clarify, Simon, I think you mentioned that the investors are generally underweight Asia. Is that underway sort of driven by China alone? Or this is across Asia region? And two, if I can just understand a little bit more on China domestic sort of capital market. Where are your key capital sources coming from? And how has that changed? Or does any sort of regulatory environment change the source of capital? And then just lastly, on overall FUM. Given where we are in property cycles, would you be open to actually divest more and take a temporary sort of pause on your FUM growth in the near term?

Thanks, Joy. In terms of investors under allocation to Asia, it's a function of a few things, primarily in the U.S., for instance, and even in the U.K., the returns from the core markets have been particularly strong. Calendar year last year, it was 20% in the core space in the U.S. and about 15% in the U.K. So that's been spoiled for returns locally and therefore, haven't really needed to pay that much attention to Asia at a time when they couldn't really move freely to come and evaluate managers in the markets. The most recent core returns have come off quite significantly. And therefore, they are turning back to the diversification route, actively pursuing and starting to travel. There is a quasi wait and see, right, in terms of China, no doubt. But it is a needle in the haystack type of opportunity, and we are finding various investors that will look to take contrarian views and position that capital early to really capitalize upon the opportunities. The other aspect is we've recently launched some research papers that hopefully you've downloaded from the website. They're getting very well read internationally because they're very down to are practical on where we see value, where we see risk. And that's been the platform for our discussions globally with investors. And that's really at the time when they're seeing the new capital land as being a different type of GP from the others in the market. Similarly, you have at the moment a Tsunami effect where GPs with large committed capital have had to turn off China. They can't get people in and out as opposed to us. And therefore, that the money is washing down into the more mature markets, Japan, Australia, Korea, and obviously, quite significantly here in Singapore. So there's a little bit of a wait for us here to just make sure we're picking off the right opportunities. There's a lot of enthusiasm here. There's a lot of value-add capital pricing down at core plus levels, which we're quite happy just to step back from. So that's just a few comments.

On recycling, we -- I think I mentioned earlier, we will not grow AUM for AUM sake. It must be founded on the basis that we are doing everything on how do we think about the returns to the LPs, the unitholders and for the larger CLI investor space. So if there's a need to recycle to reconstitute the portfolio, we can get good value, improve the quality of the portfolio, we will definitely do that. Then at the end of the day, being asset managers for -- at least for the REIT's portfolio, we want to make sure that the various sites will continue to own assets, good locations. Those assets are in positions where we can asset manage, continue to drive rental growth and there's still value to be done. But if there are some assets that we feel that in terms of the positions, it may no longer be sold core and we are unable to add further value. We definitely will look for opportunities to divest them. I think Jonathan and his team has done quite a bit of debt on that front. John, do you want to give a bit more color?

Joy, thanks for the question. I think as far as the divestment, I see the investment on 2 levels -- 2 letters, rather. One is at the CLI level? Obviously, CLI can divest more. And we can divest to the market or can have best to also add our funds to grow, whether it's public or private. I think that's why we need to take both short-term and long-term consideration in affected them. Clearly, divesting an asset to the REIT, it helps CLI. It also helped basically the various REITs or the private funds to basically further their income. So just because the market is such that it probably makes more sense at this point potentially to unlock value. We're also finishing what's the intrinsic value that comes with any divestment. At the REIT level, which is basically what Chee Koon mentioned in terms of reconstituting portfolio, you see that we are not attached to our assets. Where it makes sense, we obviously are happy to divest and recycle. And there's whole idea of recycling is you have to look at investment and divestment at the same time. What's the use of proceeds? What does it do to the equity returns to our shareholders and our unitholders? So if we are able to create more value by selling and redeploy the money to enhance the returns of those we can do that. But if we're just going to sell, of course, we can pay down debt and interest cost is that high, that is still a very possible reason why we want to do it. But what I'm trying to say is divestment is not an action on its own. It's also what do we do with the money? That's something we also have to put into consideration. And I think in the current market, we do see opportunity to also squeeze the asset performance a bit more. We are just in the midst of finalizing every little bit of the asset enhancement at Raffles City Singapore. We have announced our intention to do Clarke Quay. Earlier on, you saw in Andrew's slide on Bugis Town enhancement. So we do see opportunity to also write on a tailwind at the asset level to basically enhance the performance to put the asset in a stronger position. And at a point in time, we can still look at the whole portfolio reconstitution see whether it makes sense to do any of those actions at that point. I hope that also address not just your question but also earlier question.

Okay. Joy, I think you had a second question more on the regulatory aspects, right? Yes. So Joy's questions was, where are the key capital sources coming from in China? Tusan, would you like to take this question? The key capital sources and then...

Thanks, Joy, for the question. So in China itself, we are really looking to tap the largest source of liquidity, which presently resides with the insurance companies. That's the largest. We're also looking to work with the asset management costs. They are backed by the banks and most of them are state-owned. So they also have a large pool of capital that will deploy. And then the third source is state-owned enterprises. State-enterprises are also endowed with sufficient liquidity and they are also looking to deploy. So these are the 3 major sources of capital. In terms of regulatory control, I think in the second half, the government is actually looking to support the property sector. We recall in 2021, the regulation was actually against developers and then a lot of the financing channels, whether it's strata sales, bank financing or bond market, they were quite restricted. But in the -- I think, going towards the second half, there should be policy easing. And then the regulation should favor the deployment of capital towards real estate, not so much to turn a [ pass-into] a boom, but to support the regular execution. So in short, we're really looking to these big capital sources, especially the insurance companies, and I hope to also be able to work with the pension funds moving forward.

Maybe I'll also ask Patrick and Simon about capital sources that we've probably been working with outside of China who may be interested in China. Maybe you want to give some color, Patrick?

So there I would describe investors that are outside of China that are interested in China as being very selective. Often, they are large sovereign wealth funds or very large pension funds who have been investing in China for many years. For those who have been investing in many years, they continue to see the growth in China. They see how the economy circulates every day, just like any other market in the Western world, and they're very confident in the future of China. For some of the smaller funds who have not had a lot of exposure or frankly, haven't had any exposure in China, I think in the current environment are largely saying we're not -- we're just not interested. It's not a market where we're able to invest in now unless it was part of a much larger fund that had a, call it, a small allocation to China. Simon, did you have some views?

I mean, again, it's a global weight and watch on China, but each investor has a policy statement and what they're allowed to invest in and not. Sometimes, it's just a straight red line through China given the current environment. There's other pension funds and sovereign funds who can invest in a diversified fund, which has a component which can invest in China. That's a tick. There's also investors who can invest if China is part of the MSCI index as well, which is what I heard in the States last week. So it comes back to the investment policy statement of these investors. But generally, investors morally are against investing in China, it's more a matter of when they start their program up again. Again, our debt research paper that you'll find on the Internet, covers off all the issues that are on their mind that they're actively monitoring. But there are several that are starting to just pick up the pencil again and start analyzing how they would want to reenter. And I think that's where we're really, really well positioned.

Patrick, I'll go to Donald before Brandon.

Donald from Bank of America. Two questions from me. First is outside of China, where should we expect the new fund formations to come from to make up the remaining recycling target that Andrew mentioned earlier? Also maybe some updates, any progress on the real assets kind of business in terms of infrastructure, are we looking at these kind of platforms already? That's the first question. The second question is more on EBITDA contribution. Andrew, you mentioned that it takes a while. It takes a while for the fee EBITDA to catch up to the real estate EBITDA that you lost right now. But is there a way that you're looking to balance as the fee EBITDA takes time to come through? And also when you look at your contribution, would APRA being in APRA, is there a consideration when you manage your EBITDA? Because now it's at 31% from fee income. So this -- would this be something that you're watching for your shareholders?

So I'll start on with the funds and pass over to Simon. But I think in general, for investor or investment opportunities outside of China, knowing that we want to focus largely on Asia Pacific. I think the next big market we are focused on and where we have a decent track record is India. We do believe that there's an increasing investor interest into India in various forms. And then it would -- and then the other obvious countries are Korea, Japan and Australia, where we have a decent team on the ground in all 3 of those countries. We're building capabilities. We're developing investment strategies. And we believe -- and obviously, global investors would find those markets very attractive in particular. The second part of your question was have we advanced or are we continuing to look at infrastructure-related investment strategies? On that, I would say, absolutely, we're continuing to plant the seeds, build capabilities, develop strategy. I think the -- for us, we're looking for strategies that are closely related or approximate to our core real estate DNA. And right out of the gate, one can see things like renewable energy as fitting that box. But as I said, we are planting the seeds and building capabilities, and we'll get there soon.

In terms of funds, we have the core plus open-ended fund. That continues to receive good feedback from investors. We have several studying that a lot closer, which is encouraging. As you are aware, we acquired our fourth property in Melbourne, Australia for that COREF plus fund. And we have a very active pipeline, and we have a very active season in Europe coming up to talk to investors about coming into that fund. In terms of China, again, there are special situations, which we're capitalizing upon in country with the RMB fund. And externally, we have U.S. dollar interest to also capitalize upon those opportunities. And again, we're very encouraged by the activity we have at the moment there and looking to pick the right time to capitalize on what we're seeing on the ground with the country team.

So Don, your second question was on EBITDA was it? The -- so it's a science. You have to -- as we sit down and do the budget every year, the 2-year budget, it's more a process of getting there. It will be lumpy, right? There will be times when you are able to recycle successfully when you lose that operating EBITDA of the balance sheet or share of and then you take time for that FUM to build. So I wouldn't say that it will get it spot on every year. But the idea is to arrive at an operating model that allows us to deliver an operating EBITDA that is based off largely of FRB at a balance or add an operating model, which, quite frankly, we haven't landed on yet, right? As you know, when we first did this, we have the ability to go all the way to a very asset-light business. We have the ability to stop somewhere in between. If we find that there is [ NAREIT ] to retaining some of that REIB business because it gives us flexibility that Chee Koon talked about. It gives us that balance sheet headroom to incubate to take positions ahead of FUM formation at a time where it could be a case where your core product is gem cannot move, right? It could be entering there period in the next 6 months, who knows. So having a balance sheet to us gives us actually added flexibility and agility to be able to take positions in advance of FUM formation. So that may be a timing differential there. And then at some point in time, we take that off the balance sheet. And we did this by design because we knew that there would be times when to Derek's question, we may need to step in to help. We may need to step in to take first and then be very disciplined about when that comes off. That's the difference with CLI today and CL perhaps prior to reorg. If we take this on, we have a date circle as to when it comes off and there are people in the organization responsible for making that happen. And if it doesn't happen, then questions will be asked. So it is, again, an nascence it goes into the planning process. We have a strategic flexibility that in the next 3 to 5 years as to where we land up on the operating model, and we like it that way because there's a lot that's happening out there that may result in having a balance sheet being a good strategic tool. So sorry, I didn't answer your question specifically. But there actually is -- it is really looking forward 3 to 5 years and figuring out, okay, how much flexibility do we really need? How fast do we want to go to an asset-light model because there's a lot of stuff that may require headroom and balance sheet to incubate to help our funds help our REITs and so on and so forth. And you see some of these things appearing right now. And some of these things are -- can be very material. But if you're on your own as one vehicle and you can't acquire having a parent, having a sibling, having a cousin, having an ecosystem, shall I say, that can come in and we all can take different bits and pieces. I think it's strategically very useful in the next little while. And our last question was for NAREIT. We are prepared to 1-day drop off if the operating model takes us there. No, it won't happen this year. It will be fine. And we have a cure period as well. So even if we don't make it in terms of fee income, is it 50%? 75% 25%. So even if you get past 25%, we'll have a period. And we may decide that we can sustain this, and it's time for us to be seen as a re and drop off for scenario. We're absolutely prepared for that to happen.

I think the important thing is whether we have a resilient business model that generates strong cash flow and gives us the optionality. So to me, whether we need to be the NAREIT index to me, honestly, I'm not so worried as long as the business model is strong, you have a competitive offering, ability to find good deals, ability to generate a lot of interest from investors. They want to support us in terms of the various products. I think if we can do that and you can create long-term shareholder value, frankly speaking, I'm not so worried about that.

I just want to give Kevin opportunity because lodging is very active right now. And I know you guys are all focused on China. So I want to give Kevin an opportunity to talk about some of his funds. I mean they are busy working on a lot of FM product. It's not just about China. I know China is a focus today, but there is a lot of FM product that's in the works. So maybe Kevin, can I trouble you to give some flavor on some of the FM product that...

Yes. So just a quick one. We have actually 2 parts of the business that I'm managing. One is really the lodging management as well as the lodging funds. So you have seen that lodging management, the numbers are very encouraging. The -- if you look at us coming off the back of a record year last year, we sent about 15,000 keys last year. Now we -- at midyear, we're at 7,500 and it's actually plus percent more than last year. We're also opening more units. So everything that we signed in the past few years are coming online. And as they come online, we earned fees and the fees flow through, and that's where we get a nice margin. On top of that, we're also growing inorganically. We added Out. -- comes to 15,000 keys, 85 of them are operational. So those ones again contribute very nicely to the fees. We have a new brand to grow. We see Oakwood a global brand. It's got a very sticky brand recall in the U.S., in Japan, in Korea, even in Australia where they recently opened a new one. So it gives us another engine of growth to boost lodging fee income. On the fund side of things, you will see that we've been quite active. We set up the student accommodation fund. We read capital earlier on this year. We've been deploying. We bought one, we have another couple more in the pipe that is going to come very soon or we're going to sign very soon. We have the Ascott Residence Global Fund, which has been very active. We bought -- we just bought Tokyo, Ginza for lyf last week. We bought Bondi in Sydney, I think, last month, and we continue to deploy. So we bought Amsterdam as well, very rare freehold property in the Canal District that is really, really a prized asset for us. So I feel very encouraged by a few things, right? I think number one, we see the lodging demand coming through very, very strong. We started the first quarter a little bit unsure. But as we go into the second quarter, the recovery is very apparent. Although we hear about inflation of cost, power or raw materials, the rates that we are able to combine far outpaced the cost of doing business in the respective countries. So we see that momentum going into the third quarter, even the fourth quarter. So I'm very positive about launching this year. We're careful about next year because of the headwinds that Chee Koon mentioned, whether recession, interest rates, but I think we are in a very good position. And it's a very simple business model, right? We scale, we operate, we collect fees. We push everything down to the bottom line. And that's why you see the fee income contribution coming from lodging coming on very strongly. And I think there's a lot of momentum behind us because of all the signings we have done. This year, we're probably going to hit 30,000 keys or close to 30,000 keys with both organic and inorganic acquisitions. So I just want to leave you with that. I'm very hopeful about launching, and I think lodging can play a bigger part in terms of contributing to the overall of CLI.

I just want to add to that. I know there's a reason I asked Kevin to chime in, and that's to your point on our operating EBITDA. So in the past, right, in the last few years, Lodging contributed very little to our operating EBITDA because they were going through an awful time we COVID. If we get this type of tailwind continuing and the LM platform starts to really get -- hit its stride and get scale, right? If you're getting these keys that are coming into the system, turning operational, margins that are expanding. All of this starts to, as Kevin says, the operating model kicks it right down to EBITDA. So the operating EBITDA contribution doesn't just come from FM. It actually comes a lot from LM increasingly going forward. So as we hit 160,000 keys and beyond through organic and inorganic growth, as LM hits critical mass and margins start to hit the type of levels that one would expect from your best-in-class lodging operators, then you start to see a very healthy component of operating EBITDA start to come in from the LM side, where typically, historically, we haven't had to enjoy that largely because of COVID. So this is actually a very important pillar of the operating model for us at CLI, something that many other REITs do not have. He actually get 2 bites of the cherry. He gets to take FM fee. And then if he's operating the product he takes an LM fee on the fund that he manages or the REIT that he manages. So lodging is double layer for the right reason. We are operator as well as fund manager. And if you get it right, it's actually a very interesting part of the business that not many people can do.

I think -- sorry, Andrew, on China, it is not -- it's actually positive for us. Of the 7,500 keys that we signed first half, I think half of it comes from China, right? And we are focusing on products that are very policy aligned. We signed rental apartments management contracts with local SOEs with local governments. We continue to sign the series, the summer sets and the [indiscernible]. So despite all these headwinds in China, it's actually performing very well for us on the asset-light front of signing up new keys and generating fee income. So I just also want to leave you with that to say that actually, there are bright spots in China, and people are still confident because if they're not confident they won't be signing up new buildings and new contracts with us. So I also do see that China will probably turn around at some point. Hopefully this year, and things will go back on track soon.

Okay. I'm just mindful of time, we'll take one last question from Brandon, and I'm sorry, I see a few more rate hands, but we have to take this offline. We'll get to Brandon. One quick question, please.

I'll give two if it's possible. Yes. The first one is for Chee Koon, right. I think I just wanted to find out whether there's been any updates on strategic platforms. I think this was something which you mentioned when [ CLI ] was first formed. Are there any interesting opportunities in the market now? And given the existing environment, what kind of multiples will we be willing to pay? That's my first one. The second one is more for Andrew. It's about the dividend for this year, second half. Let's say, if we were to really not see China recover and the divestment goes to about just north of 3. Could we still look at that $0.11, $0.12 kind of number or the 40%, 50% of cash only?

On question one, definitely, we are extremely active in looking at platform opportunities, whether it's -- I mean, the initial focus is really around Asia-Pac. That's -- I mentioned before, when we look at platforms, we look at what strategic capabilities are we adding, whether it's in the form of certain asset classes in a certain geography or capital raising ability. So we need to be very clear, point number one. Point number two, it's in terms of the pricing. I'm not so concerned about the multiple that you pay. I'm more concerned about, even if you pay 20x, 25x, are you able to be -- is it going to be additive to the bottom line of CLI in the long run? I mean if I -- if it's a platform I pay 10x multiple, and it doesn't do very much to my multiple it doesn't create a new growth engine to me, it's not so interesting. But if I can -- if I'm prepared to look at the platform that's strategic at new growth engine and have overpay a little bit, but in the end, it drives long-term value creation. I think that's something that I'm prepared to do. And the third consideration is whether we have the team to be able to execute the strategy and to be able to integrate the capabilities. So these are the few considerations. Of course, there could be possibilities where we may just own a very strategist in the platform and that it continue to run. And then under that situation, in terms of ability to integrate may not be top of mind and just let me continue to operate on its own. So it depends. But I must say that M&A looking for capabilities to add on is something definitely at the top of our mind.

And on your second question, so there's no real change to our plans on the core div. If you look at our historical track record, we've always aimed to deliver on the core dividend, Brandon. So not much I can say in addition to that at this point in time.

Okay. Maybe I'll invite Chee Koon for some closing remarks. Maybe I'll just say that we're seeing some reaction to the top line numbers on our share price. So maybe Chee Koon you can address that. Maybe give some confidence.

No, I mean, we -- no not surprising that the market will react. I think the key about building the business, I mean, we make the commitment to do the restructuring to go asset like to build a fee income business. It takes time to make things happen. We are generally confident because of the teams that we have built, the opportunities that we are seeing. Sometimes things do -- I mean the timing, if everything goes according to plan and according to the timing of the results briefing, then it's all good, but life doesn't operate in that manner. I mean we are actually quite confident about the team and the ability to execute. I think the most important thing I want to reassure, I mean like the result speaks for itself. Let see what's going to happen over the next few months. You'll continue to see capital recycling, you'll continue to see new funds initiative being launched and including in China ability to launch new renminbi product. I think that's -- once you see those happening, I think you will be a lot more reason. I mean, the -- like I said, the portfolio is extremely resilient. Many of the assets that we own are in good locations and the rental escalations embedded in most of the assets, whether it's in the REITs or the funds. So, I mean, our balance sheet is extremely healthy. So do look forward, just be patient in walking through the journey reports we built the CLI business model.

Thank you. And with that, we will conclude today's briefing. Thank you for tuning into our viewers online, and thank you to our analysts and members of the media for joining us here. We wish you a good day ahead.