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

Good morning, ladies and gentlemen. A very warm welcome to CapitaLand Investment's financial results for the full year 2022. My name is Grace, I'm the Head of Investor Relations and your emcee for today. It's amazing to think that another year has just flown by, and we're delighted to share with you how CLI has performed in our first full year of operations since listing in September 2021. I would like to extend a very warm welcome to our analysts, members of the media as well as our financiers who are joining us in person and for those who are watching via Zoom, thank you for joining us virtually. We're broadcasting live from WeWork flagship assets at 21 Collyer Quay, which is an office building owned by CapitaLand Integrated Commercial Trust in Singapore. We have Tony Tan, CEO of CICT here with us as well. And this is WeWork's largest office in Asia Pacific, spending more than 200,000 square feet. So for our guest here, you're welcome to explore this amazing space after this meeting. Now please allow me to give you a quick rundown of today's program. We'll begin with our presentation by our newly appointed group CFO, Mr. Paul Tham, Paul joins CLI as Deputy CFO in 2021, and this will be his first time presenting the results. And after that, we will have Chee Koon, our Group CEO, to share his thoughts and outlook before we proceed to Q&A. So without further ado, let's welcome Paul to share some good news with us.

Thanks, Grace. I think I'm going to stay here because I'm a little scared to fall off. Well, good morning, everyone. Thank you all very much for joining us here. This is actually I have to say it's a lovely office, and it's really nice to see all of you in person. So as Grace mentioned, I'm going to share a little bit more on our FY 2022 numbers, to give you an outlook of a sense of how the year went for us both from an operating and financial perspective. And then I'll pass over to Chee Koon who will really give you our outlook for 2023. So please save your tough questions for him. So 2022 was a challenging year for real estate markets, and particularly some of this really impacted us as well. I think there were 2 main things that really did have an impact on us. The first was really around inflation and interest rates. Inflation, interest rates in the second half of the year, we saw significant uplift or hikes by a lot of central banks globally. And that put a lot of pressure on us, particularly in terms of transactions. We have a large REIT platform and the increasing interest rates put a lot of uncertainty and a slowdown on our transaction volume. If. You look at the first half of last year, I think 5 out of 6 of our REITs were active second half of the year, that slowed down quite a fair bit. So our view is that this year, things will settle a little bit. We may see a little bit more in terms of hikes, but as long as that little bit more stability, we like to believe that, that transaction activity will start to recover. The second big thing that impacted us was really around China, geopolitical tensions, Russia, Ukraine, U.S., China, that had a distinct impact on our ability to raise global capital going into China, which was always one of the thrusts we had going forward. Unfortunately, if you've seen the news yesterday and today, we've announced a couple of new funds, which is really foreign capital going into China. And we think that's a very positive sign for us for the year going forward. But last year, certainly a challenging environment. Together with that, COVID Zero policy in China. Obviously, with the lockdowns, that meant direct impact to us in our lodging business in terms of rental relief, and that did have a drag effect on our financials. But I believe this obviously, this year with the reopening up and no pressure on Tze Shyang and his team. But we expect that there will be an uplift and improvement on the China side. So a lot of macro factors last year that had a challenging impact on us. Some of that continues into this year. But overall, I think we're much more positive on how the environment will be. Some very key highlights. I won't go through all of this. We'll go into detail with the slides. But one is operating performance for us was actually pretty good. FUM grew to $88 billion. If you actually -- if it wasn't for a currency impact, that would actually be closer to $92 billion. But obviously, Sing dollar strengthened against almost every currency but the U.S. dollar. And so that brought that down to $88 million. In terms of embedded FUM and this is for us is capital that has been already committed or deals that are in progress for our REITs were actually up another $8 billion. So currently sitting at $96 billion, well on track for our organic 100B target. Lodging had a great year, has got best year we've had. We expect that will continue, but it helped us a fair bit last year. And then on divestments, we hit $3.1 billion, exceeding our $3 billion target. But obviously, it looks all bit more challenging given we had an exceptional year before in '21, where we divested gross asset of $13 billion. So a little bit of a drop there. How the improved operating performance translated was better operating PATMI were up 22%. However, total PATMI comes down because of the slowdown in fair value gains and also the slower recycling. So hopefully, in this year, we start to see a little bit more of a pickup. And then in terms of dividend, given the strong operating cash flow, operating cash flow for us this year was actually stronger than the year before. So we're maintaining our core dividend at $0.12 and also distributing species an additional $0.06 or approximately $0.06 of CapitaLand Ascott Trust units as a capital management too, also to let shareholders and CLI also join in part of the recovery in lodging. That's a quick overview going into some of the details a little bit. PATMI for 2022, as mentioned, operating PATMI up 23%, and part of that was offset actually. So actually, operating performance would have been better. We had a little bit of an offset from ForEx losses given the strong Sing dollar versus most other currencies and also had rental rebates in China of about $30 million. And so that actually offset the uplift we had, but we expect that operating PATMI trajectory will continue. Obviously, the big swing for us were the 2 columns in the middle, portfolio gains and revaluation and impairment or lack of revaluation gains. You can see the big drop off and if you look at the portfolio gains, $616 million to $222 million, that was really the big difference there for us also, again, was China. The year before, we had Raffles City divestments, last year, a lot of these gains actually came out of other markets. So hopefully, this year, we get a little bit more momentum going back on the portfolio gains through more capital recycling. Revaluation largely flat versus uplift the year before. So I won't go into all the breakdown on our EBITDA, but we break down our EBITDA and our financial results by business, by geography and by asset class. Maybe just to highlight 2 things. One is if you look at the middle chart, the inner circle shows you the 2021 numbers. The outer circle gives you the 2022. If you look at our breakdown by geography, China has historically been about 1/3 of the business, maybe before restructuring was closer to 50%, but we should be at about 1/3 of the business. If you look at the chart, what you'll notice is 2021 versus 2022 move from 28% contribution to 11% contribution. So that really, for us, was a lot of the difference. A lot of the other markets actually outperformed the year before, including Singapore, which became quite significantly much larger as a contributor. But overall, we saw improvements in most markets and hopefully that 11% enlarges this year. The other thing to highlight on this slide is asset class. Generally, you look and you can see a pretty well-balanced portfolio. Obviously, one distinct change is the increase in lodging. Lodging contribution has become much more significant for us. This is great from a fee income perspective because this is good, steady recurring income from our lodging management, and we're actually were very pleased by the contribution that we've seen over the last year. And given the trajectory of the market, look forward to that continuing to increase. This is a breakdown of our financials by business segment. I won't go through this. It's just a different cut. The only thing maybe to focus on is on the right-hand side of the slide, you can see our operating PATMI numbers and how that breaks down. We break it into 2 components of the business, our fee-related business, which is the FRB and our real estate investment business. Our real estate investment business is the ownership stakes in our REITs trust and in our private funds, right? So this is really the property ownership and the lower part is from the fund management and the lodging management business. So you can see what we've been encouraged by this year is there's a slight rebalancing. Our fund management and lodging now contribute about 50% of that. And generally, as most of you know, generally, the market gives us a better multiple on that component of the numbers. And we are seeing that improve. And we believe that this is a pretty good proportion for us to keep going forward. So we look at these 2 segments of the business in different cuts. The first relating to the fee business. So as mentioned, we are seeing this part grow nicely. This is a revenue cut on our 4 different parts of the fee-related business. The first is listed funds management. Listed funds management has trended down slightly, but that's actually because of lower transaction volume. If we were to strip out just the recurring part, you would actually see this lift up slightly. It improved on a growth from funds under management on the listed side, but lower transaction volumes, so slightly lower acquisition fees, so the slight decline. Private funds had a very nice uplift generated by good carry fees from funds in South Korea, in Vietnam, in Singapore that help uplift our private funds management performance. Lodging management had a stellar year. Nice 36% uplift looking forward to that continuing. And then property management, slight decline, partly due to property management fees out of China, which were down slightly and also a little bit as we reconstruct our portfolio. Net-net, overall, good growth. We'd love to get around that 10%, 9% for last year, but overall good growth from our fee business. On the real estate business, this is the ownership stakes. On the left-hand side, a breakdown by earnings, by EBITDA. Similar to the slides before, what you see are 2 things. One is you see a very steady operating income but in terms of the nonoperating and this is portfolio gains and fair value gains, obviously, that big drop down. So maybe the thing to highlight different on this slide is if you look on the right-hand side on the chart, similarly, 2021 on the inside, 2022 on the outside, what you'll see is the contribution for where the real estate investment business earnings are coming from, it is now 73% coming from stakes in our funds and REITs. This is important because this, for us, is part of our balance sheet management. We want less and less on our balance sheet, more and more as stakes in our funds and our REITs as they grow. It's much more capital efficient for us. So that drop from, which is the sort of middle blue. I guess we've got to change the colors to make it easier to explain. But the middle blue drops from a 40% to a 27% on-balance sheet contribution, and this is directionally where we would like to be going. Capital recycling. So capital recycling, last year, as mentioned, $3.1 billion gross asset value. Maybe 2 things to highlight on this slide. One is 89% of that divestment value went into our funds and our REITs. So the bulk of what we're able to divest is actually helping us grow our FUM and we'll talk a little bit more on one of the later slides, how much left we still have to divest. But we think this is, besides the third-party assets that the team is acquiring, this is a nice controllable divestment for us, helping see new funds helping grow some of our listed entities. The other thing to mention on this one is, you can see our premium about carrying value. So it was 12% about carrying value for us last year. The year before was 13%, so largely in line even though the market was a little bit more challenging. And I think on this one, the truth is, could we have recycled more last year if we really wanted to? Yes. But part of this also for us, I think, is prudence on what values we recycle our assets at. And obviously, that is something that we debate internally quite robustly as well is making sure that we're looking after CLI investors as well as we look to exit some of our positions on the balance sheet, we want to make sure that we are not exiting for the sake of exiting but really looking to get a balance of returns on our assets as well. So overall, capital recycling, while it did achieve target, this is something that we definitely want to push harder for this coming year. Property valuations, largely stable, and this gives you also a good sense of where geographically that came from. Obviously, retail struggled a little bit more, our business parks, new economy assets did well. But as you can see from the chart, the 2 areas where we had weakness last year, China, net loss or down value by $90 million and then slight weakness in parts of Europe and the U.K. So a little bit of weakness there. But generally, in our other markets, valuations were actually relatively stable or improved, particularly India and Singapore showed good strong improvement. So in terms of just a quick snapshot on our financials. I won't go through the details, but our debt equity continues to be relatively stable, and we're comfortable levels, about 0.5. I think the thing to highlight as mentioned, operating cash flow, which you can see $735 million. This is an improvement from the year before. And this is something that gives us a lot more comfort in terms of our balance sheet going forward, which is why I think from a proposed dividend point of view, we were very comfortable maintaining our $0.12 dividend -- core dividend, which is the dark blue box, think this for us is a reflection of stability of earnings and our expectations going forward in terms of our earnings profile. So something we're very comfortable with. And then we have a special dividend this year. Last year, we had a $0.03 cash dividend which is partly to reward shareholders from sort of the drop-down we had to [ $0.9 ] the year before. But then for this year, what we've decided is to give a dividend-in-species of CapitaLand Ascott Trust units. The truth is it's probably our best-performing trust this year. We think, given the high potential in the lodging sector and growth, this is something good for CLI shareholders. This was something that was considered during our restructuring. At the point in time, we decided not to give class units because it was in the middle of COVID. Most folks at that point did not feel that hospitality was the right asset class to own. So now we feel this time round, we think it will really benefit our shareholders. And from a group perspective, we moved down from 37.5% holdings down to about 29%, where we are very comfortable. It brings us in line with a lot of other REITs and trust where we hold low 20s or even high-teen percentages. So that is our financials in a nutshell. I'll just touch very quickly on some of the key operating highlights for us for last year. Our fund management side. As mentioned, fund management up, including embedded FUM up to 96%. Actually, if it wasn't for currency, we would have been a lot closer to the $100B target and maybe Chee Koon would cut us a little bit more slack but we're not quite there, but on steady track, we believe and we hope this year will accelerate some of that growth. On the right-hand side, something to highlight in terms of capital tenure for us, which is a little bit of a unique differentiator you look at our capital pools, we're actually largely perpetual capital. And perpetual in the sense that, obviously, we have about $60 billion in the REITs and unlike our open-ended fund, though it had no redemptions or some of our private funds, there isn't a risk of redemption. Admittedly, there is -- can be some impact on share prices that can move up and down but we don't have that same impact. So for us, it is an unusually steady recurring income stream, which we get compared to other fund managers. And I think of that franchise that we're very happy with on the listed side. In terms of overall fund management performance where it is, we see slight growth in the fee revenues on the left-hand side. And then on the right-hand side, you can see a little bit more of a breakdown of what was recurring fees, starting with the listed at the bottom. So a little growth in that recurring fees, then slightly lower on the acquisition fees or the transaction fees that are event-driven. So that 52% down to $35 million. And then -- but that was made up for by the private funds. And this for us is, to a certain degree, the benefit of having the 2 sides, which is why we want to see both legs of this growth is to help offset because in certain markets, it's better to be running the REITs in certain markets, it's better to be running private funds. And we think having these 2 longer term for us becomes quite complementary. So on the listed side, just some quick highlights. So our listed side grew by about $2-odd billion, and maybe actually the thing that we're actually most proud of is if you look at the bottom part, starting with #5, is we actually had steady DPU growth on most of our REITs. In fact, 5 of our 6 REITs improved with the 1 REIT being related to China, which we think is quite understandable in the current market. But this is actually for us actually critical, right? More than growth, I think, for our REITs, what we take very seriously is the performance and being good stewards of our investors' money. And what you'll see is that steady DPU growth to [ senti ] was driven by the parts above it. Above 5 and 4, proactive asset management, a fair bit of asset enhancement, working on our properties and expanding in a certain case in Malaysia, we expanded into logistics in India into data centers and that helped drive that DPU performance as well. And so I think when we look at this, most critical for us, particularly in the coming year as well is making sure that our REITs perform well. And given that we're also the largest shareholder in all of these REITs having them deliver on NPI and DPU is important to us, too. On the private fund side, good momentum. I would love to have shown an overall growth in the private funds numbers. Private funds took a real hit due to currency. We have a fair bit of exposure in foreign currencies. And with that FX impact, most currencies outside of the U.S. actually depreciated between 8% to 12%, for us, and that actually shrank the FUM. So though the team has grown, it doesn't always reflect in the numbers. But obviously, we had good domestic launches out of China, Renminbi funds. Our Korea funds generated good carry, and we were able to see repeat investors, and we believe that will continue to grow as well. And then we had a few niche funds, self-storage, obviously, lodging for us, which is a standout, I think, in terms of our ability to have a vertical stack operating platform really helps differentiate us there. So some growth there as well. Do we expect that it will grow faster? I think you all should hold that question for Simon and Patrick later on. But it's certainly something that we would like to see this momentum continue to accelerate. What we announced this morning and yesterday, 2 new programs of funds related to China. This is big for us because it is evidence of foreign capital starting to look again at investing in China. First, we announced, I guess, on the upper part of the chart, what we announced this morning, China opportunistic fund. This is really looking at special situations. And it's on a programmatic basis. So what we have is we have one, which is a single asset fund, which with global investors, which we are doing a repositioning of a retail asset into a little bit more of a mixed use with more office space. And then we also have a programmatic joint venture, which we seeded with one of our logistics assets in Foshan, and which was on our balance sheet before, and this is a start of a programmatic joint venture and looking with some global investors in regards to how else we can find special situations in China. The second fund, our China Data Center fund. So this is -- was seeded by a couple of development projects we have on the balance sheet, which were acquired for this purpose, really to help us launch there. This is a development fund, which when fully completed, project total value should be at about $1 billion. So equity commitment from global investors is about $0.5 billion. So this, for us, is a great complement to the domestic renminbi that we're doing. We believe that these 2 aspects together with China is opening up, will certainly help us pick up or continue the good momentum we've seen in this. Just on the lodging business, Lodging is very easy to talk about these days because people can see travel going on, more people coming back, flights are expensive, rooms are expensive. Last year, we added 33,000 new units to the portfolio. It was an outstanding year from us on a lodging basis, lodging fees up 36%, and that was driven by a lot of recovery, good occupancies, but it was also driven by improvement in revenue per available unit, REVPAU for us. So you can look on this chart, you can see our REVPAU by geography. If you look across the entire chart, you'll see everything is green except for China, right? And overall, despite that, we were up 40% year-on-year. So this is -- for us, this is a good part of the business that gives us a little bit of advantage in this space. This year, hopefully, with the recovery in China, the one non-green becomes green, and it helps to offset potential any headwinds that we may see in some of the other markets. But overall, it gives us good confidence that we're going to continue to see some growth on the lodging side. And then just finally, just touching on our real estate investment business. This is our ownership stake, as mentioned in our properties, in our units in the various REITs and trusts and through our stakes in the funds. So this is just a snapshot of how we did. For those of you who track us quite closely, the truth is more than 50% or 57% of our real estate investment business is now held through the REITs. So actually, if you watch the reporting, and I think all 6 which always go out before us, you'll actually get a good sense of how our numbers look as well. And as you would probably know, from having seen results from our different teams, Singapore, is good performer this year, high occupancy, positive rental reversions. And because of that, we saw positive NPI contribution. Similarly, for India, good performance, new development projects, NPI numbers are up. I would say in terms of weakness globally, where we saw it, obviously, China was a tough one for us, as mentioned for all the various reasons of which we expect will hopefully improve this year. And we also saw a little bit of weakness in Germany and in Japan under our other markets, but that was offset by improvements in the U.S., Korea and Australia. So overall, actually, we had from an operating perspective, a pretty good year, just offset by challenges in specific markets that unfortunately affected us on an overall basis. So conscious of time. Last slide for me. In terms of our longer-term pipeline and in terms of divestments and reseating, we continue to have just over $10 billion in terms of pipeline assets on our balance sheet. We started to put some pictures up on the bigger ones below, for 2 reasons, one, to give you a sense of assets that we are proud of, but also to give you a sense of what we have on the balance sheet for potential divestment. And what you can see on the -- from the chart below is what you realize is when we look at our biggest assets for divestment with the exception of, obviously, ION Orchard in Singapore, the rest of our assets are actually in China, a lot of our assets. I'd say half -- easily half of what we would look to recycle is really there. So for us, this makes a big difference, right, in terms of geographically where that recycling will come from. But I think what gives us confidence is this year, even though it was a little bit more challenging, we still managed to divest $2.7 billion into -- or recycle it into fund management, into our fund vehicles and we continue to acquire to warehouse. And that's the one thing we're comfortable using our balance sheet for is really acquiring, holding for a while and seeding funds or into our listed entity. So this for us becomes part of our growth for the future as well. And with that, I will pass this over to Chee Koon to talk about our future.

Thanks, Paul. I think you did a great job as the inaugural CFO for his new appointment. Congrats, Paul. I think good job. Give him a round of applause. Thank you. Andrew, you choose well. Thank you all for coming. He did such a great job. I don't want to belabor the point talking about the last year's performance. Maybe just to remind everybody, we embark on the restructuring exercise less than 2 years ago. And our ambition is really to -- after doing the entire restructuring creating the vehicle. We have a long-term plan of really building a globally competitive real estate investment manager. It's going to take time. And some of you who are here, I'm familiar with, I used to sit here when I was running Ascott and I got many, many questions from friends and some of you are still sitting here asking was the ROE for Ascott so slow? Why don't we sell the Ascott business? And if you look at the business that the Ascott done today, I mean, what is on an asset level, the discipline in terms of how they manage the assets and growing the fee income business in a very asset-light manner. Not forgetting every time they sign the management contract, the fees last for 20 years. Now you build a certain scale, the fees flow very, very nicely. So when you need to -- we are very focused on what we want to do to build a global business to be an asset management business, reputation is important, track record is important, making sure that everything that we do, we need to think on behalf and think in a very disciplined manner, how do we deliver returns for LPs, for unitholders and also for CLI shareholders. And that's the basis that we will continue to pursue growth. And this is a reminder, I mentioned this before, I think to some of you, when we did the restructuring 2 years ago, the original plan -- original plan when I took over the CEO of CapitaLand in 2018. The original plan was to do the restructuring only after 2024. That is after we built up all the capabilities, after we quietly bring in people like Simon, Patrick and all the distribution team, do some -- deliver some track record, then we do the speed. But the COVID situation presented the opportunity for us to do the speed ahead of time. But of course, at that point in time, the organization was not ready, but we decided to go ahead, don't waste on crisis, bringing the team, built the team. And I must say that, I mean, today -- I mean, Simon and Patrick have built up the team. I mean we have a much more global capital raising team going out there introducing about what CapitaLand is about. I mean, I'm on the road a lot, meeting a lot of new people, and they are excited about the opportunities that Asia presents, whether it is China, whether it's India, whether it's Southeast Asia. I mean China is always -- I meet with many other investors. Many people are asking, is China investable, right? For us, we have been -- China is a big part of our business. We said that we have to demonstrate that we can raise domestic capital from China. In the last 2 years, I think a big thank you to Tze Shyang and his team managed to raise almost about RMB 40 billion. We said that we're going to do it, we execute it, we demonstrated it. I think once you can demonstrate to investors that, look, there's a domestic capital that is prepared to acquire the assets for foreign capital that wants to invest in China, first and foremost, is the economy is strong? Is China going to continue to be one of the top 2 most important economy in the world? At least I believe so. There will be bumps on the road. But if it's going to be investors, especially foreign investors, they need to look for exit options. If there are foreign LPs that start to have second ideas, concerns, but if you can demonstrate that there is a ready huge pool of domestic capital ready to take on the assets. I think that demonstrates confidence and it demonstrates our ability to execute ability to asset manage and ability for domestic capital to come in to invest with us. And I think that will slowly bring back the confidence of people to continue to invest into China. I mean we are today at, I would say, a pretty interesting point in the -- I would say, in the business world, especially for China, I must say. I mean we have been there for 20 over years, reputation. We have boots on the ground. We are actually vertically integrated across many of the asset classes. Domestic capital, we start only talking to one 2 years ago. And today, we have opened up. I mean the relationship is a lot deeper. After you open up one relationship and there has been a lot of reverse inquiries. I was just in Shanghai last week, I mean to be fair, today, my mood about the economic outlook for 2023 today is a lot better than 2, 3 months ago towards the end of last year, when we were preparing the budget for 2023, I say, I'd say China is still shut, thinking that China was only going to open maybe second half of this year, recovery only 2024. But when they decided to move, well, things opened up very, very quickly. And even though environment was very, very difficult, we continue to stay very disciplined in looking for investment opportunity. We acquired the -- some of you may know, who followed us very closely, we acquired the Beijing office asset in -- on the first day of the 20th, the Party Congress last year. First day, we announced it, it was a court auction deal. We acquired it at a price that's significantly below replacement costs. And that's the discipline that all the teams on the ground have today in the market where interest rates are rising, where it's very difficult to underwrite deals because you go to investment committee, people would argue about what is the cost of financing, what is the exit cap rates. So we need to be very disciplined in finding deals that we believe is below replacement cost, and we believe can deliver good returns and we are prepared to use balance sheet because we are confident that we can deliver the returns. And if you can find good assets, a lot of capital will be knocking on your door to want to participate in those deals. And that's the discipline that we have been that we have been keeping in the group. And going forward for this year, you will continue to see us continue to look for growth. On the listed REIT side, obviously, given where the share price is you can ask Jonathan later how he's going to look at growth, but we will continue to look at opportunities through reconstitution through accretive acquisitions. All this will happen, maybe pace a bit slower, but we will continue to look for deals. On the private fund side, the engine has been built. You'll continue to see activities coming up, especially in this part of the world, some variable ideas that Simon has together with his team. If you can get it through, it will be good for CLI. Lodging, I just -- I mean, I don't need to say too much. You saw the numbers. I mean how much it will cost you if you have to travel. I was trying to book -- take a shot weekend trip in April to stay in Kevin's service apartment, the kind of rates that his people were going to charge me was so ridiculous that decided I'm going to go Taiwan instead. I couldn't afford the rates. So I just want to tell you, I think the -- to build a company, we have to take a long-term view, how we are continuously building capability and creating enterprise value. That is the basis on how we will build the company. Along the way, there will be bumps, there will be interest rates issues, there will be geopolitical issues, but I just wanted to reassure the investors and the analysts here that we will continue to be very, very focused in terms of our execution and be very disciplined in how we look at deals. And you can look at the team here, the average age of the group has been reducing with the exception of Manohar and Seng Chai. But the team, we are building younger and younger people in the team. Why? Because to build a company to be globally competitive, we are talking about building, we're going to fight this world for the next 10 to 20 years, you need people with the energy, right? Not that Manohar has no energy. He's still very, very -- he's still very -- he's a lot more energetic than me in many ways. But we need to -- we are preparing for this. It's a long journey that we are fighting, and it's about the capability, it's about experiencing, the experience that we are building in the company. So with that, thank you, we can do Q&A.

Can I also invite Paul as well as Andrew, who is now CLI's Group Chief Operating Officer, to take the stage. I would also like to make some introductions. Joining us and seated in first row are members of our CLI Leadership Council and that includes the CEOs representing our key income streams, which -- and they will participate in the Q&A. We have Simon Treacy, CEO of Private Equity, Real Estate; Patrick Boocock, CEO of Private Equity Alternative Assets. Please ask them about their fund launches, which we announced yesterday and this morning. And of course, Jonathan Yap, CEO of Listed Fund as well as Kevin Goh, CEO of Lodging. And I would like to make a special mention of Puah Tze Shyang and Ervin Yeo. They're seated there, Our senior management in China, who are joining us for the first time in person, first time in 3 years, and they will bring you the first hand news from China. And finally, I would like to shout out to our viewers online. Please don't hesitate to join in the discussion by leaving us a message in the chat bot, on too. And with that, we're ready to take the first question, Mervin. Can we pass the mic to Mervin, please?

Mervin from JPMorgan. I promise Paul, I'll be gentle with him today. So I wouldn't direct any financial questions to him. Maybe we can start off, congrats on the announcements the last couple of days in terms of new mandate wins. But can you touch on investing inquiries, be that onshore, offshore what's the best appetite, any particular asset classes that they're looking at? Obviously, you were the only bidder for the Chinese property, I see compared to this, being more aggressively buying as well? Second question I have is for Kevin. He's obviously doing exceedingly well. He has effectively hit his targets, one year in advance. So any thoughts of guidance in terms of number of units under management going forward?

Simon, do you want to take the question?

Thanks for the question, and good morning, everybody. In terms of investor appetite, clearly, investors are spending this quarter, looking at their overall portfolios, looking at their operating environment, looking at what capacity they have to invest starting probably from the second quarter this year. I think that's a very global synchronized activity at the moment for institutional investors. That said, they are still underway Asia, particularly with their portfolios in Europe and they're very careful monitoring of the U.S. market where capital values are starting to come down now quite significantly. We continue to have with our global capital raising team numerous meetings with investors all around the world every week. And again, their views on our platform is that they're seeing a differentiated way for them to better understand real estate risk and have that capital sensibly deployed up and down the risk-return spectrum, including in new niche sectors where we have the capability to better understand the trends happening in the markets such as data centers, credit, et cetera. So I'm quite positive that in the second half of this year, you're going to see investors now coming back into the market and looking at us as a very viable complementary manager to their existing GPs in this region to invest in these markets as they recover. My hunch, my strong sense is that this will be a very, very good vintage year for investors and that we are very well positioned to take advantage of that on their behalf as fiduciaries.

Kevin?

So I take the second question. To give you a bit of context, when I first joined the company, we were at about probably 20,000 keys globally. And at that point in time, we find that we are very constrained. With 20,000 keys, you have no scale, you can't invest in a loyalty program. You can't get the best systems out there. You can't get the best people. So at that point in time, I think what we're trying to do is to focus on getting the numbers up we're going to get 20,000 to 30,000 to 40,000. And since then, I've seen us grow from 20 to 40, 40 to 80, 80 to 160 and that's doubling every 3 to 5 years. Of course, the doubling gets harder as the base gets bigger. So -- but at this point in time, I think we are at about 160,000 keys, we're looking across our portfolio. We also look at the different product types that give us the different margins and we are beginning to see that the service apartment product actually gives us a lot more fee per key than, say, managing a rental housing, which is a lot lower. So we're looking into the quality of the fee income that we can extract from each of these products and to borrow often mentioned phase of not growing for growth sake. We really want to look at where the quality growth is. And guide many of you here to see in which direction are we going. And what kind of fee income are we going to extract from the growth. And so -- I think going forward, we will try and give you a little bit more color into the various dimensions of how we measure success and how we look at how we grow. I would very much want to keep to the momentum of doubling every 3 to 5 years. If we do that, we could be the next merit in -- not too far future, but I think we have also to be realistic that as the base gets bigger, it's harder to double, but we definitely continue the growth momentum, right? And I think in the course of this year we'll come out with certain metrics. If you look at some of the management companies or the hotel management companies, they look at net room growth. They look at margins. They look at certain product types, certain brands that they want to grow. They look at geographies where they have higher ADRs, where we can extract higher margins. So we'll start to kind of give a little bit more color on some of these factors. But we will -- we are still working things out and when we're ready, we'll come to you.

Thank you, Kevin. Can we have the next question, Yew Kiang?

Yew Kiang with CLSA. Thanks, Paul, and Chee Koon for the lively presentation. I have 2 questions. The first one is on asset recycling. Last year, you managed to divest at top percent premium to book. This year, how are you going to balance that between asset recycling, AUM and that premium because are investors and bidders willing to pay that kind of premium in this market? Then secondly is on any share buyback plans now that DIS for class is done, any future plans on that?

I'll cover the share buybacks then I will leave Andrew to talk about asset recycling. On the share buyback, we still have our mandate. We will go back out to shareholders for renewal of mandate in the upcoming AGM as well. I think we still consider share buybacks as part of our capital management tools. We don't have a set target on how much we are looking to do the buybacks on. But obviously, I think we believe intrinsically in the value of the stock. So if there's an opportunities to pick up and improve some of our holdings as well. I don't think that anything would stop us from doing that. And so that the intent would be last year, I think we bought back probably about $130 million, something in that range. And I think for us, that is a fairly comfortable number.

Question on recycling. I saw first thing, just to remind everyone, we're not in the business of selling for selling stake. We tried to engineer good premiums, and we look for partners who are willing to take assets at the right price. So that will continue. As I mentioned this morning, I think buyers and sellers are in this adjustment period. There is a need to a need to recalibrate because we've got interest rates, you've got funding tables, they need to be relooked at, underwriting that needs to be relooked at and so on and so forth. So we do think that first half, it will continue to shift. The ground has not settled yet. And I think it's probably important to acknowledge that. But if we do see the signs of stabilization from a monetary, from a policy perspective, we do see capital waiting to come in, which we do. There is a wall of capital waiting to come in. They just need to know how to underwrite. So I think when we get this greater certainty, then the recycling will spool up to a comfortable level that will enable us to hit our targets comfortably. Whether you hit -- we repeat an exceptional year of '21 or we get to somewhere between 3 and 13, I think we'll find out. But it's, again, I think, not a difficult period for us. We are very comfortable with what our targets and our budget is for this year.

To be honest, I'm more concerned about FX movement, the strong Sing dollar currency than anything -- yes, that's my -- before that, Tze Shyang, you want to give some color about what the Chinese renminbi capital partners are, I think anything useful to share with them because you deal with them on a regular bit. Just give them some color about the appetite. I mean I just have to know that -- there's a lot of capital in China that can't invest outside of China. So maybe Tze Shyang can.

Thanks, Chee Koon. So maybe any one a bit to the asset recycling it and what Simon has introduced. So we look at China, we will, in the past, quite focused on raising foreign capital to invest. But in the last 18 months in particular, given what has happened in China and all the geopolitics, I think it was a very evident and is critical for us to refocus and diversify our efforts to tap domestic. The domestic investors obviously know the market better. So the domestic investors obviously can underwrite better. And the right means that they can tell what's really going on, where the rents are going to go, whether occupancies are going to go, how the assets are going to perform and which asset classes to deploy in. So we have had a good run last year. We had our renminbi fund management license in 2021. And then we were able to then get into the act of really explaining our work to the domestic market. And then the last year, we raised 3 funds. FUM coming close to [ 10B ], I think it was [ 19B ], third-party capital, as Chee Koon pointed out, was about [ 41b ] renminbi. The domestic investors, for example, like one of the biggest pools, the insurance players, they are doing good business domestically. They do have capital to deploy, and they do need to deploy. So at the end of the day, they'll be looking out for assets that are well managed. They are also very well -- they are able to understand very well the consumptions that goes on in the country. So a very good example of asset class retail, right? For foreign investors, retail has always been difficult over the last few years because of COVID, not just China, across the world. But in China itself, while the foreign investors to [ indice ] may not want to dabble too much into retail, but the domestic guys, they actually can appreciate that the consumption is -- domestic consumption is actually one of the strongest themes out there, and they are able to relate to it. So that gives us the differentiating factor. No -- back to the asset recycling, just now that I was just thinking whether the question will come to me for China. It's really the -- how much premium you can engineer is the difference between how you value the assets and what the market -- the buyer wants to acquire the asset at. And again, it comes back to how they see the future. So if they were to be able to look at asset class, they feel comfortable with the underlying trends, they feel comfortable with the operator, they know how we will underwrite and they are comfortable, actually, the asset recycling can take place at I would say, comfortable margin. So this is from a domestic point of view. The increase that we have reached out to last year, 2021, we had a big breakthrough with one of the big insurance players. Since then, it has allowed us to tap into a lot more avenues. Not only have we gone deeper into the insurance sector from 1 player to now 6 [ institutes ] with us. That's really a show of strength and we have also touched noninsurance. Noninsurance like trust money, SOE money, also securities. So that broaden the pool of capital available to us. So moving into the future, just answering Chee Koon's point, I think the domestic investors will continue to have that greater clarity over what investable in home country over what asset classes. In fact, retail or new economy, I think all the asset classes will have -- will bear attraction to domestic players. Back to Simon's point, the foreign -- just want to add one point. The foreign investors may. Some of them may have been very conservative in the COVID years. But I can tell you, just over the last 2, 3 weeks, I've already met some Middle Eastern folks. I have plans to host the Canadian folks and the European guys. Everyone is penciling in dates to revisit. I'm not saying that they are going to touch any asset class anytime soon, but the willingness to relook the market is there.

Maybe we have Mayuko-san, [ Mikay ].

This is Mayuko from Mikay. Further to China question, you have new 2 funds. And you were talking about having the global interest back into China investment. Can you give me more details, a bit more about where the money is coming from, hopefully, region or country? And what changed them where they just decide -- made a decision? And why did they make a decision now? And what does it -- does the change look like for you, for the -- going forward rest of the year?

Thanks for the question. It's a really nice try to get from us who was investing. We can't tell you that obviously, nor the region. What I can tell you that's really interesting is that there's always global investors that focus on what's coming over the horizon a little bit and positioning their capital and their thinking before the market starts to turn. And that's really the type of investors we like dealing with where we can show our thought leadership and present them contrarian ideas possibly a bit earlier than the weight of capital would otherwise think. So there are a handful of investors now who are really just thinking about where is the world going to be the end of the year? How do they play that now? And given Chee Koon's comments about the difficulty of underwriting, it's back to good old-fashioned analysis of replacement costs. That's probably one of the better indicators. So I think the takeaway for you should be that there's always these investors that are very smart, thinking forward, trying to get ahead before the way the capital starts to come on in. And you'll see that now increasingly to the point where then the wall of capital will really start to evolve from Q4 this year. So there's a window for us now, particularly in China for us to capitalize upon the opportunity. And my sense is that India could be next. That is a market that we've got a remarkable presence close to 30 years where, again, that's transforming a lot more than people really give it credit for. And we all went and got on the ground there before Christmas. And just -- we're very impressed by the ongoing development of that business we have and the quality of the tenant market and the demand for international grade space. So that's the next thing to watch out for.

We'll have Joy.

Joy from HSBC. Two questions here. First just on sort of fund management business. In the new funds, do you see a change in terms of return hurdles, sort of leverage requirements for the new funds? And also if you comp domestic Chinese capital versus international, is there a significant difference in what they require and return? So that's one. And two, on your balance sheet. Could you just share your thoughts on where you think your balance sheet stands for yourself, for the group, including REITs and also how you're positioned for sort of future growth requirements.

Let me take the first one, and maybe Paul can talk about the balance sheet. So Joy, it's a good one. I think what we've noticed is, to Simon's point about thought leadership. The capital that is happy with the risk at this point in time, and we all acknowledge that uncertainty is high. So you're looking for returns that compensate you for taking this position, such positions. So if you look at the funds that we've announced on the U.S. dollar side, right, opportunistic program, data center program, these are -- I wouldn't call these sort of vanilla cookie kind of things. These are proprietary, thought leadership, we have to take positions. We have to demonstrate that we have skin in the game. We have conviction in our investment themes. And then to Simon's point, going out to look for like-minded capital partners who share our view of where things will be. And they say, okay, let's come in, and we are willing to compensate you. Obviously, returns need to be where they are for taking such positions. And if you think about opportunistic programs, greenfield data center, yes, those return holders are where they need to be. But at the same time, from a [ GP ] perspective, so does the fees for taking these positions. So as long as you can match the opportunity and capital with the investment pipeline, then we've got a nice platform going. So I think this is the type of product that, especially for China and maybe for India, is where CLI can demonstrate leadership because again, we've been on the ground, we've got vertically integrated businesses. We've got a decent track record. This is where we can differentiate ourselves and quite frankly, what the market is looking for from us. We can't solve these 2 markets, then it's going to be a tough sell for the other stuff or other part of the business. So in the sort of higher value-add opportunistic greenfield selected all sectors, credits, one of them as well. I think this is something that you should look for more from us going forward at this point in time. And then I think on the other side of the wall sort of the core products, this is, I think, to my earlier point, we'll take a bit more time to settle down because core is much more dependent on your funding solution, your margins are tighter, your spreads are very important to you and so on and so forth, right? We all know this. So this will take a little bit more time to settle down. But we think that once the policy moves to cool the global economic engine start to take effect, people will be able to work that into the underwriting, work that into their cap tables and then that appetite to deploy this amount of capital, which is sitting on the sidelines will come back. And we have a nice comprehensive menu of core product for you, private site, public site lodging. So that's there waiting to happen. We think second half of the year, we'll start to see much more appetite on that. But in the meantime, we're putting out some interesting product that demonstrate thought leadership in the markets that we have every right to lead on. Paul?

So just on the balance sheet, maybe a few things. One is we have a strong balance sheet, right? We're about 0.5% or 0.52x debt to equity, and that includes the fact that we consolidate a couple of our REITs on our balance sheet. So we're actually closer to 0.4. The reason we like the debt headroom is actually to give us room for potential M&A or warehousing of large platforms or assets. So it's intentional that we keep that headroom for future growth. But it's actually generally at a very comfortable level. And given our operating cash flow has been strong, that also helps us. So that balance for us is about there. I would say the other 2 aspects to it on our balance sheet is we're trying to become more efficient on how we use our capital. So you'll see in the new funds compared to previously, we really have smaller stakes so 10% to 20%. Self-storage last year was a 10-90. Some of the new funds, which are new areas for us are 80-20. But generally, that's the pathway going, right, to try and be more capital efficient. Tied to that, obviously, was the DIS of class on the REIT side as well. If you look at our 6 REITs, and I will leave the Malaysia one out study separately. It's listed in Malaysia is slightly different from the 5 we have here. And for the other 5 REITs, we hold 18% to 23%. So class was a bit unusual at the 37.5%. So we thought this was effective from a capital management viewpoint in terms of returning a bit to shareholders and also reducing our stake. That said, to be fair, I think, to class, we're not planning another DIS of those units. So that 29%, we're quite comfortable. I believe the class team has growth plans. And over time, similar to the other REITs, I think we can naturally dilute down but we're quite happy with our holdings at this level. So this is already improved efficiency from us. And then the last thing on the balance sheet, I think would be around interest rates. So we are cognizant that we are still in a rising interest rate environment. And this year, I mean, we're 3.1 versus 2.7 in terms of interest rate cost year-on-year. That number will move up, unfortunately, as our loans come up. So we will pick up a little bit more cost there. But we are trying as much as possible to be active on this. Treasury paid down in another $1.2 billion in loans. So you'll have noticed year-on-year, our cash balances have gone down. I think Mervin has complained to me before about us being more better on cash management. And this is something that we are actively trying to do as well, trying to reduce our interest costs and all of that. So a little bit more efficient, a little bit more cost savings.

There was a question. I think I forgot about China expectations, right? Sorry about that Joy. Please jump in if I miss anything. Yes, I think the short answer is yes, and it's a function of a couple of things. The makeup of the Chinese -- domestic Chinese investment community is different. So whenever you talk about insurance companies, long-duration type stuff, they are looking for stability and predictability over alpha and high return. So I think it plays into our core portfolio. You saw the pictures of these assets that we have a lot of these in China, stuff that we have on the balance sheet that once we get to a stabilized state, there is a very natural uptick for this product. In the past, we didn't have private equity product that we could turn into on the domestic side. So that has changed. So it gives us greater optionality to think about these products when we can securitize them and find the right capital partners and now that we've had conversations and meaningful relationships with these people, they understand what it is we can bring to the table, both from a portfolio perspective but from a -- also from -- equally from an asset management perspective which is critical when you're talking about just delivering steady core return, right? Can I partner you for the next 10 years, knowing that you can deliver my 5% to 7% EBITDA yields and so on and so forth. So that, I think, plays nicely specifically into expectations for core return in China. The other useful part of the equation is interest costs are going the opposite way in China. And that's just a function of where we are in the cycle. Nothing to do with us but it helps us put these products together because Chinese investors don't have the same concerns about where rates are going and where it will taper out, right? They don't have the same pressures on margin versus the cost of funding. So I think for us in China, we have the makings of a healthy domestic product pipeline that now that confidence is coming back, people are willing to start to talk about okay, how do I deploy, who do I deploy with? We've got a local AMC license. We can go out and start to have meaningful conversations in growing from the 6 funds sorry, 3 RMB funds, in the future, 3 RMB funds that we have. I used to know this stuff. So 3 RMB funds that we already have in the pipeline allows us to then see where we can take the platform. I hope that answers your question.

We'll have [indiscernible] before [ Luis ] and Donald okay?

I have 2 questions. First is on lodging management. Can you give us a sense of the management EBITDA margin in 2022? And do you think there's room for further expansion? And then second is on FUM growth. $100 billion does look quite achievable now. So what are you thinking about the next 3 to 5 years? And then lastly, on class distribution. Are we expected to deconsolidate? And can you guide what should the financial impact?

Just quickly on the first question, I think we disclosed our margin numbers. It was at the low 30s, if I'm not wrong. And we've seen this number going up as we scale up. So as we open more properties, we do expect the flow-through to go down to the bottom line. And the beauty about lodging management business is that the marginal equity required to service more units is actually very low, right? So this year, we opened about 9,300 keys, which is operational keys that gives us revenue. I think next year, we are projecting at least the same level, if not more, right? So we do have a very healthy pipeline of assets that will turn operational in the next few years, and that will drive margins. Now you ask me is there a target? If you look at the likes of the other lodging management companies, it could go as high as 60%, 70%, right? But those are really big scale. But between 30% to 60%, I think we can land somewhere in between. And I do believe that our margins will continue to grow.

Just to add on for Kevin. I know the business a bit -- the details a bit better because I used to run it. You see as you're trying to grow in the various markets, you has to recruit the business development people and invest in technology. So that requires a bit of time as the properties come through, the cost just gets amortized across more properties. So that margin that's not at the level of the other big players is one in terms of scale. As the properties gets open, you will flow through quite nicely, yes. In terms of the FUM target, I'd like to give you a number. I mean, we have an internal target for ourselves. We decided not to make it public because otherwise, every quarter, you'll be asking me when am I going to deliver that? Not because we don't want to give ourselves target, because the fundamental basis of achieving growth must be -- we want to deliver good returns for our LPs, for unitholders. I mean, Janine and the team will continuously look at M&A platforms. I mean to be honest, if you want to grow another $50 billion AUM, it's not difficult. I mean we can just buy a platform and straightaway, it's 150 and 180. But does it make sense? Does it a strategic value? Is it going to help us to drive fee income? Is it going to help us to grow the enterprise value for the CRI investors? So these are questions that we always ask ourselves. If there are opportunities, we can be $200 billion, it can be $250 billion any time. The important thing is the focus on growth is there, but it must be on the basis of a responsible, disciplined growth. It's a long game. It's really a long game. It's -- I don't want to promise you something that I deliver next year, then the whole reputation gets exploded. And that's it. There's no more CRI to speak of.

Yes. And then just a last question on class accounting treatment. No, we won't deconsolidate. I mean the truth for us, the most important thing is the holding percentage. It's actually not so much whether we consolidate in or not and the reason we're at 29% is originally, we had actually talked about 30%. But then if we had 30%, we'll always have to go for an MGA, we trigger that geo code all the time around 30%, which is why we ended there. So the more important thing to us is the holding percentage. In regards to the treatment, all it will be the difference is you just have to account for the difference in our noncontrolling interest component, which will increase just given that lower percentage.

We have Luis.

Just 2 questions from me. I think the first -- I think a while ago, the CSRC officially released some guidance on [indiscernible] of private equity real estate funds in China. Just wanted to get your thoughts on the impact of this on the competitive landscape, the domestic investors and how the sector is going to develop in the near term? And the second question also related to China. Just following on from Andrew's comments about what the domestic investors shall look for. I just wanted to get a sense of your legacy China mall funds. I'm not sure how long are they in their fund life. But would this year then be a good year to kind of match the exit of some of these funds to what the domestic require.

On the first question, yes, CSRC recently has also jumped into the fray and announce an intention to allow PERE funds to invest in residential. As you can tell, from the last few years, resi has been a difficult sector because of the administration wanting to keep a lid on runaway prices. So the developers have had it tough also. I'm sure everyone is familiar. So there a slew -- made a bigger context there has been a slew of supportive announcements, measures, policies. First and foremost, the developers are now able to tap the bonds market. That's one thing. Second, I think the banks are encouraged to lend to the better run developers. And third, 6 years -- last year, the developers were now finally able to go back to onshore equity financing. So this CSRC announcement is really just another measure to try and possibly create a soft landing for the sector itself. Having the [ AMAG ] approved PERE funds, it just allows domestic capital to now go into development funds or, I would say, build-to-core type of PERE funds. And these funds can then flow into supporting some of the residential projects that are currently PUDs, projects under development for whatever reasons, financing or cash flows from sales has been slow and then the projects have stopped, right? This would then provide relief. So that's the background to it. The exact rules of engagement, all of us, industry players, we are just trying to find out, but it's a positive news. Positive news that the sector will be supported, positive news that there will be financing for the residential sector. For us, we are looking at that as another breakthrough into what we think we can add further value, which is rental housing. So it is also residential, but it is more attuned to our ecosystem where a CLI can going to PERE setups, develop products for LPs, domestic LPs, principally. We can also have our colleagues from CLD to the development and the design, okay? And then we also have our colleagues from our lodging platform, right, coming to manage. So this is a very, very positive development for us, and we are looking forward to it. Your second question was on -- okay, so we have had 4 legacy retail funds. That's our biggest portfolio besides the Raffles portfolio. So in 2021, we managed to recap 6 Raffles Cities into a core kind of open-ended platform with one of the insurance players. That was an indication that the domestic investor was able to relate to the product itself. So we would have continued in 2022, okay? Turning some of our retail legacy assets into a similar type of core open-ended platform, renminbi platform in 2022, if not for what happened, all the lockdowns, all the strain on the rentals, right? So this year, 2023, we see a great opportunity, okay? All eyes on the reopening. We don't think that immediately the increased footfalls and the clear recovery in sales -- tenant sales will immediately flow into rentals, but it's coming. So we are cautiously optimistic, okay, given another quarter or so should see underwriting strengthen, we should see confidence coming back in, and we are confident of recycling some of our retail -- legacy retail assets within the funds that I just mentioned, okay, into similar renminbi type open-ended core platforms. So that answers.

Donald?

Donald from Bank of America. Just circling back to fund management, just a couple of questions. First is on your data center fund, latest one. Are you going to get development fees for this given the CLD now is the developer? And how would the economics work? Would it be shared? And could you guide on that? That's the first question. Second is on the embedded AUM $8 billion. When would you think you will start to contribute as the capital being committed and when will we see this flow through into the fee income? Third is really on what's your thoughts on C-REITs at the moment, given that the government is -- may start to open up for commercial real estate going forward.

Thanks for the question on the data center funds, which we announced yesterday, a great announcement to get those 2 assets under construction. We are entitled to development fees. We do have 2 development partners, one being CDL and another one being a third party. So as you would expect, they are earning some of the development fee that we're charging to the fund. And we split, yes. I look at -- it would be based on the value of the work they're performing.

I'll take the embedded FUM question. Chee Koon's gotten really good at this delegation business, I have to say. So the embedded FUM is about $8 billion. The majority of that is private funds. So for instance, we would consider Patrick's CDCP Data Center Fund as embedded capital. As the fund completes, those fees increase as well with the asset value. So I would say we would expect most of this to contribute over the next 12 to 24 months as investment periods move. There is a component that relates to, obviously, some of the transactions, the REITs have committed to as well. For instance, Queensbay Mall, which is included in that FUM number, but that is more like about 1.5. The bulk is private funds for us.

And question number 3 was C-REIT was it on? So consistent with what we've been able to accomplish on the private side, [indiscernible]. The idea is to maximize optionality with the domestic Chinese economy. So your product suite should include for any bonafide capital manager, ability to manage private equity, managed public equity, have access to RMB funding, both on the loan side as well as the debt side. Then you've got your full suite of options available to you. So we've solved for 2. We need to solve for RMB bonds. We need to solve for RMB equity. So this is on our to-do list. Now it's going to be a function of what the regulators allow us to do. The idea is to be first in line when it opens, right? So we are part of the dialogue. We have positioned ourselves in front of the CSRC to tell them, hey, we know how to do REITs, we opened the REIT market here in Singapore. We made mistakes. We can tell you how to avoid them, we can tell you how to structure it so that it's -- you create an ecosystem that is tailored for your natural REIT investor, which are your core guys. Pension funds, insurance companies, your -- people who are looking for stable income as a source of income, and that is going to be paramount for the Chinese regulators. So they are going to be very careful. They're going to be deliberate about not getting it wrong and the sponsor that they choose to allow to put this product out to the market when it comes, not for the infrastructure stuff, but the real REITs, what I call the real was commercial properties, right? Where the vast majority of the opportunity set lies for China and quite limitedly for CLI as well. This stuff has to be right out of the gate. They cannot afford to get it wrong because then investment was sour, sentiment was sour, they will be second guest. So our read of it is that they will be deliberate about it. They will be -- they will want to be sure that they get it right with the first product. And this is where I think we want to position ourselves to say, let us help you do that. And by the way, we've got a bunch of properties that are stabilized, we can deliver the types of core returns that you can get to and help us help you get there. So I think we have a role to play here. It will be a function of where the regulator is comfortable enough. If you take what is said earlier about, sentiment and the commitment to reopen the economy in '23, I think this falls dovetails quite nicely as part of that. Whether it happens earlier, '23, '24, who knows, but at least the -- it's on the table and they can see this as part of the solution set to reopen the economy, introducing products for an internal circulation of capital and prudent capital management guys who know what they're doing in terms of managing such portfolios. So my personal view is I think it's coming. And my -- as an institution, we want to be in front of the queue. We're doing what we can to demonstrate that we can. We deserve to be there. And when the time comes, I would expect us to be in that conversation.

I'm sure at the back of some of your minds, you may be thinking, if you're going to do see what you mean -- what does it mean for CLCT. Jon, can I invite you to share your perspective. I mean I'd rather -- we deal with the issues and share how we are thinking about this. I mean I'm sure this will be the second question, Jon.

I have to agree with Paul. I don't know, is that really your question, but if indeed it is as it is to me, capital is fungible. I think things -- we can work things out. Just that when we did 79 Robinson on Capital Sky, people wasn't expecting private fund and a public fund to co-invest. We did that. So likewise, there's no reason why we cover a solution between CLCT and wherever REITs we may or may not do in China. So I think at today, just working out what's the right thing. And it's quite interesting, right? As China opened up, in fact, last -- just this week along, I have 2 different conversations businesses from China on the same topic. Last time, a really long one with a bunch of bankers from China. I think people are optimistic. And I totally think there's absolute good reason why regulators and policymakers in China would want to have REITs opening up to beyond infrastructure and logistics properties. To me, it makes a lot of sense. And the moment you draw the line between residential and nonresidential, I think REITs share has got a very important role to play in the way they manage real estate market. I do think they got that already. So now I do think the space will move very quickly. And from our perspective is we work out something that worked very well. In fact, this is the way I think you are here somewhere. Yes, yes, I saw everybody else pointing to him, except him. Yes, in fact, it's part of the conversation as well as to how do we find a logical way to deal with the opportunity that we see. And clearly, Chinese capital is very competitively priced. So it will be silly of us not to leverage on it. And likewise, it will be silly of us not to do justice to CLCT. So trust us, we are logical people.

In the interest of time, we will take another couple of questions. But before that, I don't think we have a lot of questions on the new funds that we launch, and I'm quite keen to tell -- to have our leaders tell all of you more. So maybe Patrick and Simon, could you perhaps say what are the key highlights of CDCP as well as our CCOP Programme?

Sure. So you would have seen the announcement yesterday on the launch of our China data center fund targeting $1 billion of AUM on a fully developed basis, equity size, just over SGD 500 million. That's quite a substantial achievement for CapitaLand. And it's a large project, 2 sites totaling 100 megawatts outside Greater Beijing, it's a greenfield development business. We source those opportunities on our own through our own network. And during the last 12 months have been building up a dedicated China data center team across all areas of delivery, including design, development, operations and importantly, customer relationships. So that's the first foray into the China data center market, which is the second largest data center market in the world, the largest in Asia. So we think there's tremendous growth there. And leveraging off of CapitaLand's deep embedded boots on the ground and the 30-year history in China, I think we're very well placed. On top of that, I think it's worth noting that we do have a substantial global data center business, both in U.K., Europe and in Asia Pac. Today, we have 26 data centers, 500 megawatts on a fully developed basis, $6 billion of AUM. And that puts us in terms of other global operators mid- to high tier. So we've got a really good capability globally. The other thing I would add is -- and we have in-country teams that are capable of doing what the China team is doing, design, development, operations and customer relationships. The other important link, we're already starting to see it bear fruit is the linkage of having a global data center portfolio and frankly, having a global portfolio of traditional real estate, we're starting to identify customers who want -- if we have space in our London data center they call us up and say, hey, do you have space in your data center in Singapore. And we've had some live examples of this just recently. And similarly, we may have tenants -- financial institutions as tenants in our office buildings or office parks in the case of India, who need data center capacity. So we're having that cross-selling capability in the organization is very, very powerful. So we do plan now that we've announced and launched this China data center fund, we do have ambitions to do more in the region and potentially more in Europe.

Simon?

So the China Special Situations fund that we announced this morning, is really a reflection of the market and where it's at. Again, it's a contrarian play, enabling investors to take advantage of the dislocations happening in the Chinese market and the pressures, particularly on owners of real estate. The 2 investments that we announced this morning, one was a logistics property in Foshan. That is a fully leased facility and it's under a 15-year lease. Again, it's a situation because of the owner's position. The real estate is fantastic, and we're able to procure a world-class facility there for that textile e-commerce tenant. So again, right time, right place, right location, able to assess the market and move very quickly to secure that property for our investors. The Beijing property that Chee Koon talked about was just probably one of the most engaging discussions we've ever had at our investment committee. The timing was the day of the opening of the 20th Congress. Again, we just brought it back to very simple real estate fundamentals that it was a very well-located property on the East Third Ring Road, where there is in that 4 Ring Roads, a moratorium on office development. It was a complete kind of broken situation that we would have been actually monitoring over the last couple of years, and we're able to really underwrite it on the basis that it's just very, very good value. And like all properties we acquire, it has a good component also of Alpha. Therefore, we're able to use our hands-on asset management skills to deliver an even extra quality return out of the cash flow. So again, our pipeline is quite deep. We're always looking at 3 or 4 properties at any one time. And investors like this strategy and will come into the program increasingly over time. So I'm not sure how many other players could actually execute that type of program. The other dimension of this and something that we should talk more about is the ESG component. So every asset we underwrite, we go through very extensively the footprint of that property. And that also is an increasing part of how investors are looking at the performance of their investments. It's not just IRR and EM. They do deeply take care for the ESG and they see us as being a very good steward for that. So it's really a new age profit program. And it has that nice kind of slither of ESG adding value to the investors' profile as well.

Thank you, Simon. We'll take the last 2 questions. Brandon, first and Derek, DBS. Brandon?

Brandon from Citi. Just 2 questions. The first one is on a capital management standpoint, right? Under what kind of circumstances could we potentially see CLI growth REITs undertaking, say, a preemptive capital fundraising? Do we have to see like a [ GFC ]? Or do you have to see like a very attractive acquisition target? That's my first question. The second question would be, how long do you think the current environment of distressed assets in China is going to last? I think obviously, we have said you're executing very well since last year.

I will talk about CLI fundraising, I'll pass it to Jon to talk about the REITs. For CLI, we currently see no need for equity fundraising. As mentioned, we've got strong cash flows, strong balance sheet. I think the only opportunity perhaps, and there's nothing identified, if there was a large M&A opportunity, we believe our share capital is quite valuable for that. And for that reason, we may use shares for a big M&A transaction. There is none in the near term, but that's the only time likely we would use that. Otherwise, there's no need at the parent company.

Brandon, I guess we will raise equity where we have a need for it. As we've demonstrated in the past, whether it's clear or clinch, we did raise equity ahead of the transaction. But we know that because you cannot always match capital markets window 100% perfectly with investment closing timing. So but once we're confident that there is the investment that we want to make because it's attractive, it's good for unitholders, and let's say, the timing of capital market is a little bit ahead of where we see investment market, we will do it preemptively. But it's on the premise that we've got good use for the proceeds. Hopefully, that answers your question.

On China distress, my own sense, we probably would have maybe a best 12, 18 months remaining at best. Why? I think today, the balance sheet of many of the real estate developers are being repaired through a massive support from the Chinese government, and they need to continue to sell the residential stock. So while they do that, I think they probably do not have too much attention to play in this space. But once the recovery is there, then we will be again competing with the local players. The second thing is, I think a number of foreign investors, until they get greater clarity on the geopolitical tension, I think going to investment committee today to do investments into China, it's going to be complicated for many investors that I totally can understand. So the question is, for us, who understands the market, we can underwrite the risk, we can asset manage. I think this is a time for us to find the right opportunity and to continue to place the right bets. I mean, this is -- I mean, we stay very disciplined in these, they are marginal. We -- they know they won't even bother to come to the investment committee because -- in fact, for the last 1 to 2 weeks, we haven't had any investment committee meeting, I say marginal deals don't bother coming. It has to be delivering the alpha returns because it's on the basis because we need to -- at the end of the day, if we put on the balance sheet, we need to be sure you can bring it to investors and say, we think this is a good new and we can deliver the returns. So I -- my sense is 12 to 18 months maximum because we know when China reopens, things can go and they can recover very, very quickly. But I can't predict for sure. But let's see, I was in Shanghai last week, the traffic jams were horrible. The queues going into the restaurants were the same like before. I mean it was packed. I mean, I felt like it was back to the China that I was familiar with. I talked to the colleagues in China. They say, please, it's over. We look forward, no more COVID it's forward. I mean that's the confidence. I think domestically, I think you will see spending. You will see the government doing a lot to spur the domestic economy. Whether new FDIs will go into China today, I think people will so take a wait and see approach. But existing businesses, looking at the domestic economy, I was with one of the big luxury brands owner, founder in Europe, not too recently, going to continue to invest in China very significantly. They say, please, I mean whether there's tension or no tension, people are going to spend. So I think we have to take things in perspective and just look at the potential of the spending power of the domestic. I mean which other market has such a big middle class, earning good salaries, if you're going to ignore that market, it's going to be quite challenging, right, for many companies.

Just to add to that, Brandon, I think we got -- let's wind back the clock to second quarter last year when Shanghai started to lockdown. So this actually -- the window didn't open until let's say, April last year. It was April, May, we had Shanghai lockdown, right? And then the -- it started to get serious. We started to say, this is what we experienced in Singapore in 2020, April, May, right, extended restrictions. And then Simon and his team came to us and said, hey, this is a window, and we should use this window to leverage off our boots on the ground because people cannot travel into China anymore. We become a very small circle of investment capital managers who can start to sniff out this stuff and be ready to move when capital is going to invest and there will be capital partners who will have similar mindsets to us. So they will see that this is going to be a window to act with asset owners that Simon mentioned, asset owners that need to transact to solve their broken balance sheets and this has indeed come to pass. So it's taken us the better part of 2022 to manufacture the product and to get capital partners who share, see what we see, to see that this is a finite window and we have to strike now whilst this window is open. So just to give you an appreciation that it does, this -- you don't just switch the light on or just flip the switch and manufacture the stuff comes on. It takes time. It takes foresight to be able to predict that this is an opportunity for us. It takes an appreciation that this is something that we can demonstrate leadership on and then we all have to move together and move fast. So I'd like to think that this is -- we should take a minute to just appreciate that this is something that's not easy to do. And it's important that investors recognize this. There are not that many opportunistic funds out there right now. So I'd like to think that there's more to come. And then if we continue to keep our eyes on the ball and stay disciplined and keep our ears attuned to other thematics that are emerging on the horizon, we should be able to similarly put out product that is in keeping with times and investment teams that are exciting to investors to build alpha for us.

Okay. Last question from Derek. Just one question, right?

Just one question from me, and it's on asset prices. I'm just wondering about in terms of the geography that you're looking at asset classes that you're keen to invest in, you've been very disciplined. So I just wonder whether one's asking by the sellers versus what you are keen to invest in it. How big is the gap that would turn a bit more aggressive? And maybe if you could indulge us which country and which asset class would be key?

Actually, we are quite agnostic whether it is -- whether the opportunity is in Singapore, in Europe or in China. As long as we find that the pricing is interesting. I mean the discipline that we are giving to the team is to find those they are below replacement cost today as a guide. I mean, given the fact that it's very difficult to underwrite exit cap rates. And I mean, in funding in -- just for instance, in U.K. is just too high. I mean, to be honest, I mean, we were given a very great opportunity to develop a data center, a great location in London. But we were not prepared to do the deal because -- just simply because we said that we won't be able to underwrite the construction cost in terms of the potential cost escalation. And so we say, no, we are not going to do it, good location. But again, I don't believe that we can deliver the level of returns in that kind under today's environment. So no, we say no to the deal. So very disciplined, extremely disciplined.

Okay. We're going to close. Chee Koon, any quick closing remarks?

No. Thank you. I think do we overshoot the time?

Yes. CDL's next.

Okay. I think Sherman is giving quite a lot of dividend. Thank you for the time, for the attention and for the support as always. But as a reminder, we are in this for the long haul, building capability and creating enterprise value consistently, okay? Thank you.

Thank you, everyone. Have a good day.