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

Good morning, everyone. A very warm welcome to CapitaLand Investment's First Half 2023 Results Briefing. I'm Grace Chen, Head of Investor Relations. TGIF everyone, and a happy belated National Day to Singaporeans here as well as to those watching us virtually. Now, CLI has had quite a week. Besides celebrating National Day, our teams who have been working very hard over the past few months and even through National Day, finally got us through the finishing line of a few important fundraises. And I'm thrilled to share that year-to-date, we have fundraised SGD 3.2 billion of equity commitments. And what that means is that we have actually exceeded what we achieved last year for the full year of 2022 where we had SGD 2.5 billion of equity commitments. So colleagues, do you want to put your hands together to just thank the hard work of our 2 teams. Thank you. Okay. Just getting back into agenda. In a short while we will have our Group CEO, Mr. Chee Koon Lee; Group COO, Mr. Andrew Lim; and Group CFO, Paul Tham to take us through the results as well as the outlook. And I would also like to mention that we have members of our Senior Leadership Council over here and they'll be happy to take questions during the Q&A as well. Without further ado, I will invite Andrew for opening remarks.

Thanks, Grace and good morning to everyone. Thanks for coming. I've got just a few remarks that I want to make before I hand things over to Paul to take you through the numbers. We put down 5 points here that we hope will help to encapsulate what the numbers reveal. I think the first one is the issues that we've been grappling with for some time now as an ecosystem still continue to persist. You can pick your poison, whether it's climate change, whether it's geopolitics, whether it's pre, post-COVID. The one we think is most stubborn and gives us a lot of cause for concern is the stubborn inflation that persist throughout the global economy and what rates have done in order to combat that. I think that you can all agree has direct impact on real estate through higher interest rates in funding and also potentially through cap rates in valuation. We are starting to see the effects of this, particularly in some economies where the rate rises have been very sharp, US, Europe, UK have all started to see these attendant effects. And when we look across the spectrum of real estate companies who are reporting results we started to see these interest rate impacts coming through. We are no different. We are not immune to that. But I would like to think that our consistently conservative policy, high level of fixed rates, long WALEs, long terms have insulated us on a relative basis, more so than some of our competitors. The other thing that gives us I think some case for optimism is that if you look back over 30 years, around about the 5% to 6.5% of fed funds rate is where the economy starts to take notice and start to slow down. So if you go back over 30 years, this is where the rates start to peak and then it comes back down and tends to come back down very fast. So if history is -- we're students of history and we take history as a guide, I would like to think that we are close to peak, which again is potentially cause for cautious optimism that recovery is around the corner and stabilization is around the corner. Why is this important? It's important because without a good visibility on where rates are headed no one is going to be doing deals because we can't underwrite them with certainty, unless you a very brave or you are very foolish. Which brings me to the second point about cautious dealmaking. I think Simon will tell you that this year, it's the lowest in 5 or 6 years in capital raised across the private equity space and I think that again is a function of folks who have put their pens down because they just can't get comfortable with the numbers. The models have all been thrown out. They've got to rewrite, they can't figure out where interest rates will land. And without interest rate certainty, unless you have 100% equity which not many people do then it's very difficult to be brave and/or foolish. So this has led to a slowdown in dealmaking, right. Notwithstanding that I think we had a pretty good first half. Our REITs raised over SGD 1 billion being very disciplined about what they are seeking to acquire or have acquired and our private equity business, as you've read yesterday and today, have now crossed over SGD 3 billion in total equity raised, again in we believe the right products. So I think we are being very disciplined about how we raise capital or rather we are still able to raise capital from partners, our unit holders, our third-party equity partners who believe in the platform that we offer. Our embedded FUM has now grown to about close to SGD 10 billion. Which means that we've got that equity, we've got capital ready to go when we feel the time is right, in products like China Opportunistic, which is, I think, a very well-placed product for the right time, ready to be deployed for the right opportunities working together with Tze Shyang and his team on the ground. We also raised a new fund in India. India now is receiving unprecedented attention. Sanjeev is here, so please direct all your questions to him. We are long India. We are 30 years in India. We have boots on the ground. We have expertise in the right sectors and in the right cities, business parks, logistics and now DCs. We launched new fund yesterday with 1 partner and we're confident that there's more to come. So India is exciting for us. It is still a small piece of the puzzle, but if you are talking about a globally diversified real estate company, then India is a core market and it will play an increased role in how we diversify our business. Okay, let's look at 2 of our core markets. I think Singapore, all here, we know the story. It's remained incredibly resilient and good for us as a Singapore company. Singapore is a destination for capital, it's a destination for talent, destination for tourism. All of these things play to our strengths. Our Singapore portfolio, which is now largest market in total asset terms, is very resilient. Right. [Audio Gap] Past COVID numbers already. And I think the rest of the world understands this, which is why capital [Audio Gap] And we have no shortage of people asking us to help them deploy it into Singapore. The problem is we don't have [Audio Gap] Them. So the hunt is on for interesting assets, redevelopment opportunities, upsizing, upskilling, taking advantage of Singapore's growing place as a center for business, tourism, talent, capital, what have you. On other core market, it is better than it was, but that, I have to say, is not saying much because last year was pretty bad. So China is on the way to recovery. Most of the metrics that you see are higher, substantially higher. NPI, occupancy, tenant sales, they're all heading in the right direction. The problem is it's not heading as quickly as we thought it would. So recovery, in our view, is going to take longer. And if you talk to Tze Shyang, what he'll tell you is that what happens in this situation is that it weighs on sentiment and China is a very sentiment-driven market. I think what we have going for us is the government is recognizing this and is pulling out all of its tools to kickstart the economy, right? Fiscal, monetary, now the tourists can travel around the world. They're trying to send signals that they recognize the extent of the problem and they need to fix it. So I think that's a good sign that they are putting the economic recovery as a priority right now and that will help us. Help turn sentiment to at least say that China is starting to become investable again. In the meantime, we are being smart about how we deploy capital opportunistic, finding assets that are underpriced for the right reasons, and that will ride an exponential wave of recovery when sentiment returns. That's what CCOP is designed to do. We raised another SGD 986. It's a big number. So we are cautiously optimistic on China, but it will take time. It will take longer than we hoped. It remains for me to talk about travel, and I think, again, this is something we were lucky to be good or good to be lucky, depending on how you look at it. So when we reorganized CLI, we decided to put lodging in because we believed in its fee income model, we believed in its capital light model. We believed we could turn it into a global platform. We had to ride out a couple of very difficult years with COVID. But the model proved resilient, more resilient than many other lodging platforms. And that actually resulted in the Ascott brand rising in stature and preference among many third-party owners because they said these guys can ride through the worst times. I'm going to rebrand. So Kevin has passed [ SGD 160 million ] and he's been forced to reset his targets into a revenue model. And I think that, again, resonates with our fee income model, right. We need double revenue to SGD 500 million, which is without question in that situation, a bona fide fourth vertical of fee income for CLI. So if there's any doubt, I think it should be clear now that this was the right decision to include lodging within CLI as a proper fee income platform for us. Okay, so if you look at the numbers that Paul will take you through, you can see there's a stark difference, right. Operating PATMI demonstrates that as a recurring business, I think we are doing what we are set out to do for all of our investors, all of our stakeholders. We are building a business that delivers recurring income. Yes, there will be ups and downs on the fee event driven side, that is a function of the business that we're in, but generally speaking recurring income will be a resilient contributor to PATMI and we are growing that recurring income base with capital that we are raising. The other piece is obviously capital recycling. And again going back to sentiment about the resistance to do deals, we are again part of that ecosystem unfortunately, right. We are not distressed sellers. So we're not going to sell for the sake of it, but we want to raise capital at the right time so that we can redeploy that more efficiently, and in the process if we can sell it at a good price, then it delivers an important component of cash PATMI. But in the meantime, you can see this difference between -- in our first half results. Operating PATMI resilient, portfolio gains will take a little bit more time. We are cautiously optimistic. In the second half activity will pick up if these macroeconomic indicators start to come into line and people become more confident about their numbers and are able to take deals to their investment committees. Okay. So why don't I stop there and hand it over to Paul. Thank you very much and we look forward to your questions.

Thanks, Andrew. Good morning everyone. It's funny listening to Andrew. For those of you who don't know, Andrew was my predecessor. He used to be CFO and he used to do the bulk of this presentation most of the time. When he was talking about interest rates, I thought for a moment there he would forget and just keep going and I wouldn't have to present. No such luck. So just very high level on our numbers. Overall for us, first half, I would say relatively resilient. Revenue numbers flat, 1% down. Operating PATMI flat, 1% down. Obviously the big shift for us was in relation to total PATMI and you can see there that we're down 19% really driven by slower portfolio recycling and that is something that -- well, we picked up a little bit of pace over the last couple of months. Most of that happened after 30 of June, which is why when you see a capital recycling number there of SGD 839 million, middle bottom box, not all of that yet translates into portfolio gains. So some of that divestment number -- since that is as of August 10th number, some of that will only kick in in our full year results. So I won't go through necessary and overall growth drivers. Andrew has covered a fair bit of that and where we think of as where we can see growth going forward. And a lot of these topics we'll discuss later as well when Chee Koon is on stage talking through for our Q&A. But really we see our listed funds still recurring fees, investments a little bit slow but growth on the recurring fee basis. Private funds, some very good news over the last couple of days. We seem to have done this for first half as well, made a push right before results. I am starting of having -- thinking of having results every month so that the team has more announcements to come out. And then lodging has been great for us. And so these are for us good drivers. Geographically, a little bit more under pressure and we'll spend a little bit of time talking about besides Singapore and India where else can we see some growth. So looking at our business segments and really starting with our fund management business and this is really our main focus, going forward is really on the fund management component. And you can see how numbers. There hasn't been as much growth as we'd like, but you can see a bump up in what we consider embedded FUM and this is funds under management that we've either raised capital for or that intended for deployment from the REITs as well. And as you can see we are up to about SGD 99 billion. So we're very actually happy about that component. I think where we are being a little bit more disciplined is on the deployment of this capital. It's a very tricky market environment right now. We want to make sure that for our investors, whether in the private funds or in the REITs that we are deploying capital for deals that will give them good returns. We don't want to just deploy for the sake of deployment. So you see a little bit of gap there. We got a little bit more dry powder, which we are sitting on waiting for the right opportunities. In terms of our fund management fees. One positive for us has really been around the recurring fees. On the left hand side of your chart, you'll see, full year 2022 versus the first 2 quarters for 2023. As you can see Q2 SGD 106 million versus SGD 106 million last quarter -- last year second quarter. So the listed fees and also from the private funds, we've gotten some nice stable income. Unfortunately what is clearly missing is event-driven fees, which you can see from the middle pair of -- middle column pair. You can see that recurring component has gone up a nice 10%. Unfortunately, the event driven is down by quite a fair bit. Some of that will pick up. Some of our REITs have made announcements recently on acquisitions. Obviously with the new capital that we've raised the private funds will have a little bit deployment. But that pace, certainly slower year-on-year. Hopefully picks up a little bit in the second half. But we think this year will still be challenging in terms of seeing really strong deal momentum. Related to that on the right-hand side you can see our FUM to FRE ratio has unfortunately come down and this really relates directly to the performance fees. Without the one-off carry from the private funds last year and also with the lower acquisition and divestment fees that number has come down. We do expect that number to go back up as a little bit more normal activity continues. So when we talk about our funds management business. As most of you know, we have 2 main units, our listed funds unit, which is our REIT franchise, we have 6 REITs, very happy to say, at least from an NPI basis, we've seen our REITs perform relatively well. We've seen on an overall basis, positive rental reversions across the board. All of our REITs have seen that on an overall portfolio level. We've been relatively disciplined we think over the last 6 months as well in terms of reconstituting their portfolio, asset enhancements and really trying to drive higher returns for investors. So good steady growth there. Obviously, we've raised about SGD 1 billion worth from the REITs market. We think over the course of this year and next year, as interest rates hopefully turn, we'll see a little bit more activity and growth there, hopefully, back to the numbers we used to see a couple of years ago. I think the 1 challenge our REITs are facing is just exactly that on the interest rates. So on the right-hand side, you can see that high interest rates has pulled down. We've had a few REITs who have managed to have enough NPI improvement to offset that higher interest cost. But I would say, generally across our portfolio, that interest cost has weighed down such that whether it's DPU or for our joint ventures, some of that cash coming up to the parent company has come down a little bit because of the higher interest costs. So we continue to be very active on our capital management, trying to make sure that we are balanced enough, both in terms of being prudent, but also making sure that we capture dips in the market to try and lock in some rates. And hopefully, over the next 6 to 12 months, we see a little bit of turn in this. On our private fund side, as Grace mentioned at the start, we're very happy. We're up to SGD 3.2 billion capital raised this year. That is more than the SGD 2.5 million that was raised all of last year. And while we are very pleased with the teams, as I'm sure Simon will tell you that is not the target. They are expected to continue to grow in the second half, and we still expect to be able to raise funds. I think one thing we're very pleased on with the announcement yesterday was our new India business development, business park development fund. We are seeing an opportunity there for a more heightened investor interest in India. The team with Sanjeev and Gauri, who will speak a little bit later, will be able to share with you a little bit more on how the market is looking. But it's certainly a market where we think future growth for us will be faster than it has been in previous years. The other 2 things we've raised money for, our core open-ended fund and our China Special Situations fund. So the special situations fund has gone up to SGD 2.1 billion in equity now. At those numbers levels, we consider this arguably one of our flagship products. We think there are a lot of opportunities we can capture to try and pick up. And then the one below that, even though it was a smaller raise, that core open-ended fund, which is a core plus focused fund, which is a private fund, we raised another SGD 150 million. That for us is good. It's a good sign. We believe this means we still see investor traction for investing in Asia Pacific and also in some of our core plus products outside of our REITs. So it's a great job by the team on getting these fundraises in this environment. We are continuing to look at our products. Obviously, we're continuing to focus on fundraising, but we're also looking at our product suite for what are investors looking for in this higher interest rate environment. So obviously, last year, we had a special -- besides the special situations, we had our self-storage, we had our logistics for Southeast Asia. So we are exploring areas such as credit, which we do well in markets that have high interest rate and potential more value-add special situations type funds. So [Audio Gap] Given the interest rate environment. So this is our private funds and our listed funds business. Moving from our lodging management component. So lodging is having a good year again, and we're very thankful that we've got the lodging business. RevPAR is up 35%. This is our revenue per available unit. This is driven by higher occupancy, higher room rates. We've seen great numbers across the board, particularly Japan, Singapore, Europe, all seeing nice uplifts in numbers. Most of you, as you try and travel are probably complaining about room rates. I do that all the time to actually myself, except when I see these numbers. I'm very, very thankful that these rates are going up. We do think this momentum will hold for a while. Obviously, yesterday, China relaxed some measures on group tours. We think this continued pickup on tourism will continue to help our lodging business. But just to calibrate a little, last year's second half was also a very good half for us, lodging business. So while we expect [Audio Gap] Whether we can still get 35% on a full year basis or maybe a little [Audio Gap] But we are still seeing that improve. And we are very positive about the outlook [Audio Gap] The business. We continue with signings and expansion on the properties. The target for this year, I think we went out to say was 13,500. We've made pretty good progress as of August, 7,000 units signed, 4,500 new opened. We always [Audio Gap] A little bit of churn some units drop off. But the team is seeing nice growth as the brands expand. And for those who don't know, we have more than 800 properties under our various lodging brands. And our goal is to make this into an even more sizable pillar. On the right-hand side, you can see our fee revenue targets. We are a little over SGD 150 million for the first half. So obviously, we expect this pace will continue for the rest of the year, but it puts us nicely on track for getting to our SGD 500 million target as well. So that will increasingly become important for us as a group. So I think this 1 vertical for us, while it's slightly different from the fundamental component where they share that similarity is really on that recurring income asset-light nature, very positive around our loading business. So now moving to our real estate investment business. These are the assets or investments we hold on our balance sheet. These are our stakes in the REITs, our stakes in the funds and also the approximately SGD 10 billion worth of assets that we're hoping to divest off our balance sheet into our fund vehicles. This just gives you a shape of the portfolio. And we are still largely Singapore and China. But as you can see, those percentages have come down slightly, and that's really driven by some growth in acquisitions and markets, but also the growth of our lodging business, where we also do have assets in other markets [Audio Gap] Entities such as CapitaLand Ascott Trust growth overseas [Audio Gap] See a little bit of that shift as well. So our overall mix as you can see is going in the direction we want. We're trying to increase our diversification by [Audio Gap] Also trying to increase our diversification by asset class because moving forward, we think that helps us in terms of resilience. So [Audio Gap] Investments doing. [Audio Gap] I've mentioned before, if you follow our REITs and our trusts [Audio Gap] Doing right. More than 60-odd percent of our real estate investment business comes from our ownership stake. So if you see CLCT's performance, CapitaLand China Trust, you get a feel of how our performance in these different markets are going. But to give you a little bit more color. We thought we'd get some of our leaders in the different regions to share with you a little bit about how the different markets are going. So we're going to start with Singapore and I invite our Southeast Asia Investment Head Patricia to share a little bit about the market.

Hi. Good morning, everyone. Actually, for Singapore, I shouldn't be the only one standing here. It is a collective effort of [Audio Gap] Colleagues in Singapore [Audio Gap] Doing operations as well as investment. And that's headed by Chris Chong, Tony and William, being our CICT and CLAS CEO. I won't go too much into the operation details because on our balance sheet, we only actually have 3 assets in Singapore. And CICT and CLAS already shared most of the operation results and [Audio Gap] Line. I think 3 key things, good rental reversion, strong retention and also rental growth. So maybe let me just talk a bit more on the investment landscape, which perhaps most of you will be keen to hear. So that's the point of view, we are still getting [Audio Gap] Country. Our asset value is stable, and the rules of engagement is clear. Obviously, they have also signaled that the era of low interest rate and getting investment returns just by getting low interest costs and expecting cap rate to [Audio Gap] We are expecting to see managers work [Audio Gap] Assets. And this is the reason why they are keen to engage with CapitaLand. Of course, we do show the track record of being able to do asset repositioning, bring [Audio Gap] We have wide network and connection with tenants. In Singapore we have a tenant base of more than [Audio Gap] Corporate tenants, 1,007 for retail [Audio Gap] Communicate with us. That is why they want to engage with us. Compared to half a year ago, there's also more interest in our assets now coming from a few angles [Audio Gap] Of people who believe that interest rates have close to peak. It's relatively easier to [Audio Gap] Right now because compared to 1 or 2 years ago, you'll be trying [Audio Gap] About when is interest rate going to peak and how long do we need to make that assumption. So we don't see [Audio Gap] Engagement with investors like what Andrew has pointed out, engaging with us and, but we do need to see where the assets that we can offer. Then on the investment landscape, you also see that deals are slow in Singapore, there's not much transaction. Office wise we only see Robinson point being transactor. The buyers and user [Audio Gap] There's a couple of [Audio Gap] Whole office strata units being transacted. Shop houses are popular [Audio Gap] Is active. We have done Seagate in one off as well as [ Topaio ] and also industrial property. So we are constantly in a look out. And in terms of the investment market right now. We do see that it is an interesting time. We have sellers whereby they are funds and fund lives are coming to an end. So there is a timing pressure that you need to exceed. We have sellers who wants to manage their gearing down and we also have sellers who wants to redeploy or reallocate their real estate assets because of denominator effect because you have motivated sellers that gives us good opportunity to do bilateral discussion and get good deals for CapitaLand. And this is exactly what the ground team is doing now consistently engaging with owners and agents as well. And because we have different parts of capital, the REITs will take the core asset investment. While the private funds will be active looking out for value-add opportunities, which we are in the process of negotiating for some of the deals. An example, a point to make is our self-storage mandate. We have funds to deploy. And right now, we are seeing prices coming to a level where we're able to underwrite double-digit returns for the fund.

[indiscernible] So now we are just going to invite Gauri from India to share with us a little bit on how the market is looking.

Thank you, Paul. Good morning, everyone. Happy to talk to you today. Just a quick rundown on India at the macro level first. India is clocking -- is expected to clock a GDP growth of just about less than 7% comparable to last year. Inflation is below 5%, well below the Reserve Bank's target. In the first half of 2023, we had close to $3.7 billion of foreign FDI investment into the Indian real estate sector. That's almost about 75% of the total FDI that had come in the year 2022. As of today, we have close to 1,600 global capability centers that have set up a shop in India and every year that goes up by about 120 to 250 GCCs. In terms of the employment, about 300,000 additional IT jobs were taken up in the last 6 months. So the total employment in this sector is about 5.8 million people. And it should reflect that in real estate space we calculated that 100 square feet for every employee. So that is like a [ 580 million ] requirement on the Grade A office space, IT office space. In terms of specifically with the business parks industry itself. The first half of this year clocked about 26 million square feet of gross absorption that is comparable to what it was in 2022. 2022 was in itself among the best years for IT office or business parks absorption. 2022 to clocked about 56 million square feet. 2023 -- and 2022 had the benefit of low absorption in 2020 and 2021 because of the pandemic. 2023, despite 2022 being a high year, is expected to compare well with 2022 and we are expected to have a better net absorption than 2022 at about 36 million to 39 million square feet. In terms of our own portfolio, we are clocking about 91% occupancy. This is at least about 12% to 13% higher than the industry average which stands at about 78%, 79%. In terms of actual footfall in our parks, we have -- on an average, we have greater than 50% of actual employees showing up at work. Most of our tenants have mandated their employees to work in the offices, at least 3 days a week, usually in Tuesday, Wednesday and Thursday. The percentage of our tenants who sort of allow their employees to work from anywhere is in the single digit and going down. In fact [Audio Gap] These days require -- some of the mandates these days require 4-day work weeks or even 5-day work weeks in the office. In terms of leasing, 26 million was the gross leasing for the industry. As compared to that, we have punched better than our weight. New leases we have signed about 2.25 million square feet in the last 6 months, and we have renewed about 1.57 million square feet. And as already announced, we are all excited by the launch of the new India Development Fund. It's SGD 525 million, and we will be targeting both greenfield and brownfield developments through that fund. And 2023 is expected to be an exciting second half, and we expect that to continue in '24, '25 as well. Back to you, Paul.

Thanks, Gauri. Thank you very much. And then lastly, just to share a little bit on how things are in China, pass this to our China CEO, Tze Shyang.

Good morning, everyone. Paul has given us 1 minute to say our piece. This is harder than the fundraising. I'll try and do it in 2. Allow me just to give -- I am Tze Shyang from the China team, just allow me to give some color on what we see on the ground in China. So post-COVID pent-up demand for domestic tourism, hospitality, retail services have indeed made solid contributions. Overall, while the recovery is in place, as we all know, it has unfortunately fallen short of our expectations. As you move into 3Q, hopes of a V-shape recovery has faded and I guess against the backdrop of weakening global demand, supply chain relocation, moderately low domestic consumption and private sector investments and also household savings has increasingly put away. We do see a lot of the companies adopting a fairly cautious approach to business expansion and investments. So while overall growth is slowing and the economy is working hard to fend off deflation, Beijing has signaled very strongly. It will come out to do more to boost consumption and private sector investments. Admittedly, all the businesses are hoping for a far bigger stimulus package to rejuvenate the economy further. So on our front, the house view is that we remain cautiously optimistic that further policy relaxations, support as well as trade and consumption and hunting measures will be rolled out progressively for second half of '23. So against this tough operating environment, our own operating performances have been very, very resilient. On a total portfolio basis, our revenue and NPIs are up from last year. Specifically on a same basket basis, revenues and NPIs are 4% and 7%, respectively, up year-on-year. Looking at retail, our footfalls are up about 34% from last year. Sales on a per square meter basis are up 25%. And even on a total sales perspective, we are up 8.2% year-on-year. So as Paul alluded to, the recovery is in place. Of course, we hope for a greater acceleration as the time goes on. For our retail and office occupancies, they have all crept up despite lower rents. Simply put, our strategy is to prioritize occupancy right now, i.e., cash flows. We successfully carry out a lot of good AEIs. All of them have given us double-digit ROIs. For business parks, our occupancies have held very steady and even with a slight increase in rents. That's on the operating side. On the fundraising side, very happy to share and to reiterate what Andrew has said in the morning. We have continued to drive fundraising efforts and we have closed up another [ 870 million ] for our CCOP Special Situations Fund, where we will take on special sits in China, distress opportunities, value-add opportunities at the right pricing. We are also very active on the fundraising front. As you know, over the last 2 years, we have managed to raise close to SGD 40 billion in third-party capital -- domestic capital. And this year, we remain confident that we should be able to add a couple more to our staple. Also, finally, we are looking at the strategic opportunity to potentially sponsor or participate in the CVT market. This is really part of our China for China overall strategy. And we really want to broaden our access to alternate additional funding sources. We have started with insurance companies and securities companies, trust companies, but increasingly, we want to target more like midterm, long-term funds, pension funds, social security funds and annuity funds and the like. So such a platform will then give us greater access to asset recycling in the future. And it will present credible exit options, which are very important to our PE investors, both domestic and foreign. Okay. Over to you, Paul.

Thanks, Tze Shyang. I've been in this company for about 1.5 years now, and I've come to really like this management team. But we really can't do 1 to 2 minutes around here, not our skill set. Okay. So we talked about our 3 core markets. We actually do have teams on the ground in a lot of other markets who are working very hard, and we are actually seeing progress, whether it's Australia, South Korea, Japan, the U.S. and Europe. And we do think, over time, these markets will also become increasingly important for us. So that was to give you a sense of all the different parts of the business and how things are moving along. Very quickly, I'm just going to run you through now how that translates into the numbers for us. So we've mentioned this multiple times for the course of the presentation. Total PATMI numbers on the right-hand side for us, down 19%, driven by the middle section lower portfolio divestments, where you can see the stark drop off from SGD 87 million down to SGD 7 million. We will see this number improve in the second half as a number of the divestments will post 30th of June, but it is still an area of weakness that we think for this over the course of this year. I think the comfort for us is really on that operating PATMI. It has held up pretty well in the current environment, but particularly with the high interest rates. So we're hoping to keep the momentum on that front. On an overall EBITDA basis, and here, the EBITDA may be slightly confusing. Those of you know EBITDA is earnings before interest, tax, depreciation and amortization. For us, because of the way we're structured, we hold stakes in our rates and funds. Some of that interest is actually accounted for at the investment JV associate level before it floats up into our EBITDA number. So because of that, you don't see the full effect of the higher interest rates necessarily in this taken out in this number. So this number is partly down because of the higher interest impact that we are seeing, and you'd have seen this across a lot of our REITs as well. Maybe just 2 things to highlight on this slide. On the left-hand side, by business, as you can see, our fee-related business is now up to 30%, improvement from the 26% last year. This is the part which we want to continue to see grow as we generate higher recurring fees and add stability on that fee income. And then in the middle column, you can see China has rebounded for us from a 12% contribution to an 18% contribution. So that is encouraging for us. We expect next year, we will also see improvement in this number. We do expect it to contribute a larger part of the portfolio. But as you can see, the other parts of the business, whether it's Singapore or the other developed markets helping make up for some of that. Fee-related earnings by unit, listed funds generally flat, while recurring was up, event-driven was down. Similar for private funds. The big swing was the event-driven fees. The one-off of SGD 31 million from last year for the performance fees for Vietnam and Singapore made that a little bit outsized. On a more normal run rate basis, you see that recurring has actually inched up. And then on a total fee basis, thanks really to that star performance from lodging. You can see that we're up slightly year-on-year. On our real estate investment business, here, you can see the revenue is up 9%, and this gives you a better indication. Generally, we are seeing positive rental reversions. We are seeing higher revenues at a number of our properties, but that's really been -- a lot of that is being hit by the higher interest rates, which is what gets to our bottom line. And then capital recycling. Last slide on the business performance component of it. As you can see, recycling, we've put a number there of SGD 839 million. More than SGD 800 million of that came post 30th of June. So we had a very busy couple of months. Our team is working very hard. But that's why it doesn't reflect. That's why you see a SGD 7 million profit number for divest for portfolio gains. So some of that will flow through. We have an annual target of SGD 3 billion. This is going to be a challenging market for us on being able to get to that SGD 3 billion target. Obviously, the team is still pressing and trying to get there. But we do think that while we have the funds for deployment, and we have the assets we want to divest, we also want to make sure we're doing good deals. And because of that, I think we're still going to continue to take a prudent approach to transactions. So we are still pushing on the divestment target. But certainly, it's a little bit of weakness this year. And then finally, just on our balance sheet. Two things to highlight here is you'll see our interest cost now at 3.8%. That's inched up slightly from Q1, where we were at 3.6%. For the bankers in the room, if you could help us bring that number down, we would very much appreciate it. And then as you can see, we still have a fair bit of healthy debt headroom. We're at 0.57x. That number has creeped up because in the first half of the year, we paid dividends, and we did the special dividend in species of the Capital and Ascott Trust units. And so that has moved up. But we still have very comfortably significant debt headroom, if there are potential portfolios or platforms to acquire. So those are the 2 things we highlight off that. Sustainability very quickly. We continue to track well towards our 2030 targets. Energy intensity, water intensity reductions, both of those, we've already exceeded our 2030 targets. On the others, we are making steady progress. And if you have questions on this, I'm sure Vince would love to talk about it. And then just so that we get to Q&A, in terms of our overall conclusion, some of our key takeaways, Andrew has covered a lot of this. I think just maybe the one thing to say before we go to Q&A. We do believe there are opportunities for growth. I don't think we are one of those players who are single vertical, single industry where if that industry goes well or that sector goes well, you'll see great growth from us. We are diversified geographically and product wise. And because of that growth for us will come from multiple sources. It puts us in good stead in halves like this where you see our earnings being resilient. It also means growth for us will have to come from multiple avenues for us to really get that scale. And with that, let me end and move to Q&A and invite Chee Koon and Andrew on stage to take questions.

Thank you, Paul. So in addition to Chee Koon, Andrew and Paul, who will be on stage, I would like to make a few introductions as well of our panel who are sitting in the front row. We have Kevin Goh, CEO of Lodging; Simon Treacy, CEO of PERE; and Patrick Boocock, CEO of PEAA. And also viewers online if you would like to join in the discussion, please feel free to leave a comment or a question by clicking a post-session tab on your screens. And with that, maybe I'll get -- Chee Koon do you want to -- any remarks from you before we start?

Yes. Hi. Morning, everyone. Thank you for joining us in the results briefing. Andrew, thank you, Paul. They covered most of the key points that I wanted to do. So actually, I can do it in less than 1 minute, contrary to what Paul has mentioned. I just want to highlight 1 point. I mean when we restructured the business, to split the development business and the asset management business, we are really positioning the company for growth. I mean, at this point in time, the big environment is one where we are dealing with the rising interest rates, very difficult geopolitical environment. The key -- the other dimension of the challenge is the uncertainty of where things will end and how things will land. And I mean I just want you to know that. I mean that's the environment we're dealing with. We're looking at many, many deals, debating on many deals. The only thing why we are not doing some of the deals is because we are just not happy in terms of the pricing that we are getting because we do believe that at the end of the day, we want to make sure that we can deliver consistent, high-quality earnings for our -- whether it's our unitholders, whether it's our LPs in the various funds, I mean, that's the key, including the investors at CLI level. So pace will pick up if we find that the big ask price is closer to what we are looking for because at the end of the day, if you can't deliver the returns, there's no point in pursuing growth for growth's sake. So that's something that we are very, very disciplined and something that I want to emphasize. The only other thing for me to highlight is despite all this difficult environment for us to be able to deliver these results here is really the hard work of many of the people that you don't see. I mean you see all the CEOs speaking, the REIT CEOs, the key senior leaders, people like Paul and Andrew, there are many people behind the scene from Chris Chong to Ervin, who work so hard to go and convince people to set up shop in Singapore in our various business parks. Chris Chong who does a great job in terms of repositioning all the assets. For those of you who are in Singapore, if you visit the malls and the offices, you look at how the repositioning has been done, the courage, I mean even from shopping malls like Funan to Raffles City, for those of you who have visited, you look at the comments from the tenants, the performances, all these are hard work and courage done by the team. So I just thought useful to -- not to forget, behind all these numbers are really the good work done by the various people in the company. So with that, we open to Q&A. Thanks.

Thanks, Chee Koon. Bhavin, as usual always the fastest hand. Bhavin, please take over.

Hi, Bhavin from JPMorgan. Congrats on the strong raising assets given the tough environment. Given potential big interest rates, are you seeing a pickup in interest from your LPs? And which products are they most interested in? Second question is in terms of the SGD 10 billion Embedded FUM how much of that realistically can be deployed in the second half? And finally, we've seen with a REIT manager, should we be worried? And how you think about defending your business?

Simon, do you want to answer the fundraising part of the question?

In terms of capital raising investors around the world are now starting to see probably the end game in interest rates and making their 2024 plants based on what those more normalized operating environments look like in terms of higher for longer. So I think over the next quarter, investors are definitely going to send papers to their boards and investment committees and look at their allocations in 2024 in real estate globally. Asia, for European and US investors definitely remain underweight and that's good news. They see growth and diversification has been the key benefits looking into Asia. Again as I've said in previous result briefings, the reception we're receiving globally is very attractive. It's very encouraging. It does take time, it is a very competitive market, but as you can see by the results, we're starting to get some headlines, we're starting to get, followed by our very thoughtful research that's online. And therefore I think Q1 next year we should really start to see the vaults being opened up. And I think that will come from probably the German market and the pension funds in the US. That's our hope that that will add additional levels of capital than what we've seen before with our existing investors who continue to support us.

In terms of deal flow, we're seeing deals, but just not happy with the pricing. So at this point in time in terms of balance sheet application. We're still using it, but we use it to do credit type deals. We like the credit exposure because many of these, we are quite prepared to -- I mean we -- of course, we hope that the people that we lend money to, they will pay, but otherwise we are quite happy to own the asset, but that's not the intention because we really want to grow the credit business. I mean the big picture is this, right? We are seeing high interest rates, we are seeing banks essentially withdrawing in many of the developed markets, the ability to provide financing, and I think that provides a very interesting window for us to really build out the credit business and credit platform. We have credit tenants in Australia, in Hong Kong, in China, in India. I think looking to really build a Pan-Asian platform during the next few years. That's something that we really want to be able to do at this point in time. So that will be the focus for the next few months, but if there are good deals, we are quite prepared to buy. I mean to use balance sheet we need to be able to deliver very high returns, because the cost of capital is so high.

Why don't I take the question on Sabana. Someone was going to ask it, so I thought you probably want to go first. So a few general points to make and then one about as a sponsor, I think. So the first point, if you look at other REIT markets, most of us students of other REIT markets, I think there's a general process of maturation that REIT markets undergo and internalization is one option for REITs to pursue. So we've seen this happen before, we've seen this happen in Australia, we've seen this happened in the U.S. And it's happened before in Singapore actually so Sabana is not the first. So I think we accepted it. It's an option that REITs unit holders, REIT managers may deploy. A lot of reports, a lot of studies have been put out to ascertain as to whether the internal models better and all the external models better, and I think it's safe to say there is no conclusive evidence either way. You can make arguments for both sites. Which is probably why in most mature markets you have instances of internal managers and you have instances of external managers that do well and that don't do well, which probably leads me to the conclusion where it ultimately goes back to the performance of the REIT, the performance of the manager, and if there is a sponsor, what is the role of the sponsor in ensuring or determining or playing a key role in the success of the REIT performance? And that is, goes back to our position as sponsor and it's a position we take incredibly seriously. If you look back and we've alluded to this earlier, the track record of our REITs is something we are rightfully proud off, I think, we take every investment decision incredibly seriously. We can share with you that there have been many instances where we have pulled back from doing deals with our REIT managers because we didn't feel it was the right thing or the right time to do, and this involves sponsored deals. So, to me fundamentally will go back to the role that we see ourselves and the role that we can play for our REITs. We are happy to defend that if unit holders want to ask us about how do we see our role as sponsor, the responsibilities that we take seriously, I think we've very happy to defend that in front of it. I mean we would look -- point to the track record of all of our REITs as testimony to that. So good luck to Sabana. Sabana specifically has interesting history as well. We all know that. And so, it could also be down to a specific case of this particular REIT dealing with circumstances that are unique to itself. So I hope that answers your question.

Just to add on to Andrew's point, I think it goes back to what fundamentally is the vision and the responsibility for CLI. I mentioned about being able to deliver consistent high-quality earnings for our unit holders, for investors, for the LPs. So being sponsors for the various REITs, and I mean we don't own 3%, 5% We generally on average 20% or more in the REIT vehicles. So our fate is very much tied to the performance of the other unit holders. That's point number one. And for major transactions, we undertook the merger between, then Ascott Residence Trust and Ascendas Hospitality Trust, we feel that it was important to put the two vehicle together. First and foremost, because there was a conflicting mandate, and we believe that will strengthen the balance sheet. And if we didn't do it during that time, I think if just Ascendas Hospitality Trust on its own during the COVID will be very, very difficult for them. We did it and we waive the fees, I mean not just simply because we are doing it just because we wanted to the fees we waived, if I'm not wrong, if I don't remember wrongly, it's about 50% of the fees waived. And subsequently we did the merger between CCT and CMT, to create an Integrated Commercial Trust which Tony is running. We did it during COVID, right? I mean there was a SGD 100 million worth for fees which we totally waived. And why did we do that? Because we believe that at that point in time retail that was challenges in terms of e-commerce, nobody knew exactly how things was going to unfold. Then office, and then suddenly office there was a work from home fear, but when you put the two portfolios together, you look at the performance, the underlying resilience of CICT today, of the Singapore assets. And we did, we waived the fees, it's SGD 100 million worth of fees. I mean it's a big amount, but we did it because we believe it was in the best interest of the unit holders for both CCT and CMT. So I think if we are prepared to be responsible sponsors and undertake action and be prepared to put the money where our mouth is, I think that long longevity in terms of relationship becomes important, it builds trust over-time.

I think I guess also find out people's cost debt, if you don't have a very strong sponsor behind you.

Guha, you go next.

So Chee Koon, I need to ask you this, with the restructuring of CLI, fee income is a very important part of it. So if there is a conflict between CLI and your REITs and REITs the DPU growth, where is your interest?

I mean CapitaLand and has been a long-term sponsor of the REITs for many years. So I mean today if we need to do another merger say for the CCT and CMT and the same condition, I don't believe we will take a position that's going to be different. If CLI in the old CapitaLand days will have taken the same decision because that's what we believe is the right decision, that's something that we will do. But I think he has to be on a case-by-case basis context is important, the market conditions are important, and what is ultimately the value that we can create to the unit holders becomes important.

And Guha, the conflict is perceived. Actually it shouldn't be a conflict. In the long term there is no conflict. We own 20% in our REITs, DPU affects us directly. If we take a short-term view to earn an acquisition fee because we put an asset down, it's not healthy for the REITs. First of all, it is judged on independently. We have no say in the ability for the REIT to acquire that right. So we are putting ourselves up in a position where it's very vulnerable and we would be seem to affected negatively by independent unit holders, for which we have no control. And I think one off again going back to Mervin's question, one of the strengths of the S-REIT market and the ecosystem is the legislation that sits behind it and safeguards the interest of minority unit holders. And I think this is something that actually in a way differentiates the S-REIT market from many other markets, right? Sponsors, perception of sponsors, disproportionate control or influence, actually is mitigated to a great extent. Anything that happens between sponsor and REIT is essentially happens without the direct influence of the sponsor. The unit holders, the independent unit holders decide. So if we do something that is contrary to the benefit of the REIT, we may win in the short term but lose in the long term. And I think if you look at us and you judge us by our track record that is not what we're about. So I don't actually see a conflict of interest. The other thing to add is that for some of you, I mean the people who are doing the deals at the REIT level or at the funds level, when you negotiate with the banks, actually the CapitaLand franchise does make a difference in terms of the pricing. I mean you can talk to the banks. I mean being responsible sponsors, being sponsors that stand behind the vehicle does make a difference.

Yeah. Some question following from that is, I mean you have paid down some of your stakes in some of the REITs, reasonable class CLI and I think CICT last year. So would you increase that stake to defend it in the event of something like this becoming more widespread in case of...

We have publicly communicated we'll will keep about 20% to 25% stakes in our REITs. So I don't think that's going to change, because we do believe that you do need a certain skin in the game to show that there is alignment. I think anything too low, it's not going to show the alignment, then investors start to think are you really -- for the purpose of, let's say, we want to drive super high ROE, the best thing to do is to make sure that there no stake. Then that you just 100% the fees, but then really all the unit holders will be thinking everything that you're doing, are you doing in the best interests? So we do need to make sure that whatever that we are buying from the perspective of the REITs, in terms of DPU, the DPU accretion does make a difference to CLI and we need to be able to account to the CLI investors as well.

We'll have Brandon from Citi. And I'll go over to this side after Brandon.

Just a few questions, the first one would be on China. I just want to get your thoughts on I think, CIs strategy here over the next couple of years. I mean I think China is in a very different situation today, and I want to understand what's your strategy in your base case scenario and in your worst case scenario? That's my first question. And the second question would be on India, I think you have talked quite a bit on this geography this time round. Is there target AUM exposure that you are looking at. And I think looking at the number of private equity funds that have been exiting, do you think this is the right time to further accelerate your position here?

I must say that the questions you asked are things that we discussed in our boardroom. In fact, we had heavy discussions with our Board members yesterday on actually these two markets. China is a big country. So I mean, to be honest, when I read the deflationary numbers that China reported it was to be honest, a little bit alarming. But I think the important thing is to look at it whether it is something that could be ongoing and whether it cuts across the whole China, because China is big, and if you take a step back really CLIs investments into China really focus on the Tier 1 cities. The key provincial cities where there strong urbanization, strong student growth in terms of our business activity, at least in the, I would say in the last 20 years. There are concerns around China. What is the impact on FDI, demographics, all these are big questions. I probably don't have an answer for you today, but I personally think that China, given its 1.4 billion population, if we stay focused on investing in a few key markets where we have a strong operating capability, strong execution capability, strong demand, if you look at the shopping malls that we have today, I mean we are still able to creep up in terms of the occupancy. I must say that the rental reversion is lower than our underwriting because we had assumed that the recovery was much stronger. So I do think that we can still have the ability to execute. It's just that going forward, we need to think through what does it mean in terms of the asset classes, in terms of where else should you be expanding in China, that's something that we are still thinking about. I don't have an answer yet, but you can see that from a few years ago we started on the strategy of using a lot more Chinese capital for China. We make the decision to raise domestic renminbi in 2021. We raised today about CNY40 billion. There still quite a lot of traction there is ongoing. Of course we are exploring C-REITs. I mean, it's something that we're still exploring the complications, C-REIT itself is not so easy because, first and foremost, you cannot be the fund manager. You don't have the public fund management license, that's point number one. The second thing that happens for C-REIT is for any asset that gets recycled into the C-REITs, 90% of the proceeds have to be reinvested, whether it's for development of our asset enhancement work. So they're all these things that we need to think through, the implications. Although, as what Tze Shyang mentioned earlier, C-REIT even though is starting out, I think it's interesting vehicle for us to look at as potential asset recycling platform. I mean if you can create, in my own view, domestic renminbi, whether is on the private on the C-REIT side, they can still buy have a very competitive cost of capital. Then I believe that for whatever value add type of strategies that we do with offshore investors there are logical exits for many of these investors. And today because we have been in China for so long, right? And when some of the other foreign players are starting to withdraw, you have people who feel comfortable, domestic capital feeling comfortable to put capital with us because of our reputation, because we've been doing things in a proper manner, Governance, financing, and we need to know how to play to that advantage. When people are all withdrawing, how do you play that to maximize that advantage and that capability and if you do it right, you can continue to manage a lot of assets, deliver returns, and still be able to collect fee income from domestic capital. So that's how I would say about the China aspect. I mean of course unless we think that China is going to go through serious downturn, which I at released in a planning scenario we don't think so, I mean, my own view is that for every government, whether it's the Chinese government or any democratic government, economic progress is important for the legitimacy of every government, and I personally don't see why any government would want to do anything to run down the economy, that's my view. On India, I've been pressuring the Sanjeev and his team in terms of driving a lot more growth in India. We've been there since 2004, business parks logistics, more recently data-centers, I must say that we have been having a lot of requests from foreign investors wanting to do more in India as a diversification play from China. The thing about India is that we have a huge land bank, and in terms of square footage of buildings that we manage. But the rents are generally quite low. It's a dollar. I mean generally, so you know that the capital value in India is low. So even though you can buy a lot of land and you do development does take time to play. So there are other things that we're looking at. We will share with you when we are more ready. But India is definitely a key area of focus for growth for us.

Maybe just to add to Chee Koon mentioned, just particularly in China. I think when Chee Koon covered, really the three things we're doing in both scenarios for us. The first is domestic for domestic. So whether the economy is up or down, we believe there is a play in China for us to raise renminbi for renminbi use. I think the second is, no matter what, there are foreign investors who are still interested in China, as evidenced from our China Special Situations and our China datacenter Fund. It's just finding the right product and we can still grow in those areas, making sure that our product fits what some investors are looking for. And then the third thing is just to highlight one of the other things us, China is similar to other markets, but more so for China is capital recycling for us. Historically our stakes in a lot of China joint ventures or efforts has been more closer to the 50% range. I think no matter what, however the scenario is playing out the intention for us is to reduce those stakes. Similar to what we do in all the other markets right where we come down to 10%, 20%. So for China will just become more meaningful, just given the size of our presence there. We may end up redeploying it into other funds in China if that grows, but that component of recycling our assets there will continue.

[indiscernible], do you have a question.

My first question is on ROE. Can you talk about ROE for this year and also longer-term target and timeline taken to achieve that?

I guess that one is me. So longer term, our ROE target has always been to get to a double-digit number. For us to get to a double-digit number that requires two things, it requires us to lighten our balance sheet and it requires us at least over the next few years to see more significant portfolio gains to get us to above that number. Over the last couple of years we've been 8.6%, then we came down to 5.5% last year, because it was more challenging. If you look at us on a sort of a rolling last 12 months, we're just north of 5%. We should see some pickup if we can see portfolio gains, second half of the year. But to get to that double-digit will likely be at least a two years to three-year journey for us and it will require us to lighten up really the assets we have on balance sheet and really see an improvement in terms of performance fees and growth on that FRE business.

Second question is, can you share your thoughts on Cuscaden and opportunities within Cuscaden?

Cuscaden is an entity that is owned by a separate consortium. So I must say that as CLI constantly look at all opportunities in the market. So whether there is any possible transaction depends on deals that are accretive, whether it makes sense, and whether we can get agreement between a buyer and a seller. So that's all I can say at this time.

I'm Jessie from The Business Times. Congrats on your results, especially from the lodging business. So I have two questions today. The first is about Ascendas REIT. So how is the outlook like for high-tech business parks? Are rents starting to soften as some tech companies reduce space leasing. And my second question I have to ask this, but WeWork is like a major tenant for CICT, and I'm sure you guys are aware of that news, what is management's view on this? And do we know whether WeWork might be in arrears.

First question, can I invite William to answer. And then second question, Tony. Since the two of you are here.

I didn't know that I need to ask questions. Next time I will attend my briefing. The numbers that has shown positive rental reversion. Those are very strong numbers. And if you follow our results, we've actually improved our guidance from low mid-single digit to high-single digit positive in rental reversion. For business park, as far as the second part of question talks about the tech, offices or tenants, we don't see a huge impact on us, given the fact that the leases, there is no pre termination rights. So if there's any requirements or their own needs to do subleasing they would do on their own. But just to recap, all these require approval including JTC's approval, and we don't see a huge impact on that coming out from the tech tenants.

I also never expect having to speak here, next time I attend my briefing. So I think the news in the WeWork is nothing new. Probably if you track the news flow, WeWork's issue has been well publicized and written for quite a long period time. I mean as a very active asset manager, we constantly make sure that we are in a position to ring fence out our risk. If need to, we just step in. To us is part and parcel of our day-to-day job. It is a BAU to us. Notwithstanding, it is the second largest tenant in our portfolio, but I think currently WeWork came out to say that they are doing okay in Singapore. But if you need to, we've done before, we just have to make sure that we activate our contingency plan we have in place and we know how the market is functioning, Singapore, we know the tenants well, you can use Twitter as one example. For example, Twitter, I think we resolved it quite nicely. So to us, it is a BAU. I don't see any issue.

Maybe I give just some color around Singapore. In a world of great uncertainty, geopolitical environment, there's concern around all the banking crisis in Europe, Singapore actually benefited from all this uncertainty around the world. During COVID. I mean, for those of you who remembered, with great work of our port authorities, Ley Hoon used to be from our Maritime Port Authority, kept ports open, make sure that we are a critical node in the supply chain, and that was a very important decision made by the Singapore Government. And today, you'll find that many of the high-tech manufacturers continue to want to look to put the supply chain on high-tech manufacturing in Singapore, or near Singapore, because they're concerned about supply chain dislocation and Singapore plays a key node in keeping the global supply chain open, so that's point number one. Point number two is with all the uncertainty around the world, we see so many family offices coming to Singapore. I mean the new family offices. I think we don't even know what is the number today. All those people working in the banks, you look at on the record profits. You just -- I mean it's good for the Singapore local banks, but you can just see the flows of the capital coming to Singapore, family offices, people looking for homes, people looking for offices. So the demand is there. Of course, there's a lot of hard work by the team on the ground, Chris Chong and his team continuously looking at making sure that how you repositioned the assets to continue to attract tenants, I think that plays a big part. There's another element here, we do see a number of companies moving -- Chinese companies well, they always wanted to expand overseas whether to Europe or to U.S., Of course today, maybe a direct expansion into Europe and US, maybe a bit more challenging. So some of them are looking to set up a base in Singapore, to localize the business here, recruit locally, use local technology to build the local teams. And that's why you start to see a lot of demand for office, for industrial spaces, even for retail products coming to Singapore. Many of you started to see Luckin Coffee appearing. I mean when they decide to come to Singapore, you walk almost every corner you start to see Luckin Coffee. So I just want to highlight that, I mean Singapore is actually benefiting from some of these major trends and I mean that's why Patricia keeps getting phone calls from various people looking to acquire assets in Singapore. So this is a big picture on the opportunity for Singapore.

We have Joy. I'll come back.

Joy from HSBC. I have a few questions. First, Chee Koon, just a follow-up, you mentioned about credit, is this using our own balance sheet to offer credit or this is purely a credit fund?

It's important that we want to start something new, we are prepared to put our money where our mouth is. So we put our balance sheet to work, build up the business and we start to talk to investors, if investors are keen to come in, then come in. If not we're quite happy with the returns. And I think true building up their track record we will be able to build up the credit funds. Because there are investors who are interested in the credit space, but if you have not built up that track record to be able to raise the funds, I mean people will start think, I mean, where is your track record.

How quickly do you think you can scale this up and to start raising funds?

Patrick, do you want to share? I'd better get them to answer. So that they can own the outcome.

We are looking to scale up an Australian program this calendar year. We're actively speaking to investors. After that, these loans are fairly short duration and we'll get the second program out in the market.

And Joy, the key is that we have a balance sheet. So it's a strategic option for us as it is for all products. So we need to see it, we can see it, obviously, if we don't have to then all the better.

I guess just to follow up on that, does that also mean all the deals that you'll see in the market from equity perspective is not attractive? And even for markets like China?

No, that's not true. I mean it's just, there is a credit opportunity we'll build it up. Equity deals unless we can see interesting price that we're prepared to buy and we won't proceed with the transaction.

And just specifically on China deal-makings, there are lots of portfolio speak product markets. I'm sure you've looked at it. Could you share a little bit more about why you're walking away from?

Tze Shyang, you want to comment on this point?

We see a lot of portfolios put up in the market as -- I'm going back to what Chee Koon said were very disciplined. We're not going to rush into any deals. Some of these portfolios come from companies who are currently in some form of distress. So it does take time to unwind or to isolate or ring fence out this risk. At the end of day, we will take the opportunities and we will match it with capital sources. Back to your question on credit, credit opportunities in China, also special situations in China. There will always be a certain product that a certain group of capital providers like. It's all about matching risk and the returns. So China, yes, there will be opportunities. Yes, they are portfolios. Yes, we are all evaluating and moving in to second half, I think we will do all credit use as well as special situations.

Just one last question from me on Lodging. I think this is the first half that Lodging is the biggest contributor to EBITDA. Do you think that this business can grow to a size which can potentially standby itself?

Just to clarify, what you mean by stand by itself? It's already standing by itself. Just to clarify.

So as in, you know it can potentially become a sort of a separate entities. Because it's currently a substantial part of...

So, yeah, so just to clarify your question is whether it should be, what? Separately listed?

Would you consider?

So the big question is this right when you seek listing. I mean the idea is, you need to seek capital for its growth. If there is not capital constrained, we can get capital to fund its growth through Private Funds, is delivering strong income and if the fee income from the lodging business gets reflected in the valuation of the listed entity, then the question is whether we need to do that. I wouldn't say no, but I think there are many questions that we need to think through whether it makes sense. I mean, I'm not sure whether I mentioned to you before, I mean, many years ago when I was running the Ascott business, the question is about, the ROE was so low why shouldn't CapitaLand sell the business? But to invest in the business, it takes time. I mean, to build the fee income, to reduce the balance sheet. I mean, when I used to explain is every time you sign management contract is 20 years management contract the fee will flow through, it flows through very, very nicely and actually what happened during COVID, the last few years, and if you track what is been articulated by the major hospitality companies, many of them want to move seriously into the extended stay space. Why? Because it's not easy to recruit people to work in the hotels and the F&B industry, globally. And the service apartment business, the business that Kevin is running, it's very efficient in terms of the manpower. Typically, even for Ascott branded service apartment, the staff to room ratio is about 0.3. That's -- at least based on my recollection, that used to be the numbers. And Somerset is 0.2 something, and Citadines is lower, and life product Co-living is even lower. That's why you can achieve very, very strong healthy margins as compared to many of the hospitality products. At least I know, in some markets where it's difficult to recruit people to work in the major hotels, to support the rooms, that need housekeeping and the conference facilities, many of them have to shut down the rooms, they rather operating fewer rooms just simply because they cannot cope with that. So actually the extended stay space that Kevin is in today, it's actually a nice niche. It's unique. It's the only, I would say a global Extended Stay product. I mean today for anybody that wants to start this business, it's going to take time to build it up to the scale where CapitaLand has built up today. So Kevin, you want to share a bit more color.

We've got a member from the media. Terence, we'll come back to you.

I'm Celina from Bloomberg News. I just wanted to ask a few questions about China. Based on what you guys shared just now, so you said that foreign investors are still very interested. I'm curious, how concerned are they about the slower than expected recovery? What did they find most investable? And then in terms from your end, what are some areas of extension that you're considering or looking into?

I just highlight a few key points. I'll let Tze Shyang to do the elaboration. I think there are pockets of investors, I mean some of the developers, country investors, if you can see -- if you have read in the papers, generally people who are concerned China for geopolitics and the slowing economy. But there's also a group of investors like the contrarian play. They like the fact that China is the second largest economy. There are pockets of opportunities where people can invest. I think we need to make sure that the sectors that we invest in are in line with the broader policy, policy supported sectors. I think that's roughly the key themes that we will look at and maybe I get Tze Shyang to share more in terms of these responses. Tze Shyang?

So yeah, from any investor's perspective, not just those that look at China, you look for profitability. So if you view that the outlook of the market gives you that opportunity to make money, you would be naturally interested. For China is so many investors are worried over the shorter-term issues, but they recognize that it's a large market, it is still urbanizing, so there are still a lot of opportunities. We see investors who are not yet invested in China, they tend to double wait and see. But those who are already invested in China, and some of them are also entrench in China, there is this willingness to look further. So they're also long China. As Chee Koon said, geopolitics will always be there. Currently, I think the investors are just trying to stay are sensitive sectors which potentially could be a bit more problematic. But in terms of real estate, which is not policy sensitive, I think there are lot of opportunities, especially in the arena of special situations. But the assets are fine, right? Just at the owners currently experiencing a bit of a cash flow difficulties or the need to monetize for other reasons. So this space, the real estate space that we're in, we continue to see investors who are familiar with China wanting to deploy more, but naturally are a bit more cautious. At the end of the day it's all about exits. So one of the competitive advantages that we have is that we are able to play with scenarios, which means that we can help foreign investors invest and we will give them credible exit optionalities. I think that is very key. Think I will stop there.

The point not to forget, I mean China's huge population. I mean just look at the insurance sector, the number of insurance policies that they sell on a year-on-year basis and the insurance companies needing to match the liabilities with assets. And sometimes the complex deals, for regulatory reasons, they are not able to do. If you're able to take over some of these assets, fix it, regularize it, drive up the occupancy then you'll find a natural take-out vehicles. So I mean, you will see some of these things being executed by the teams on the ground and we'll be happy to share when things are more ready. So, I mean just imagine the number of people, I mean people are getting older, there's a big middle class and people are buying insurance and those pools of capital needs to be deployed.

And just one quick follow-up. Any guidance on the outlook for your China portfolio will perform in the second half?

Tze Shyang?

As I said earlier during my presentation, I think on the operating side, we will certainly outperformed last year. In terms of I think numbers we should trade up and then we are going to try and match our pre-COVID numbers eventually. So that's on the operating side. On the fundraising side, again we still have institutional investors with us that are long China, so we have raised SGD 870 million so far for CCOP, and I am quietly confident. I'm going to continue to put on two or three more renminbi Funds. And in terms of asset recycling, while activities have been low in the first half of the year, again just watch out for this space. We will be able to execute our plans. Second half of the year, that should be in the pipeline as well.

We'll reserve the last question for Terence.

I have a question for Tze Shyang as well. Back to China it's related to the prior question how negative is that China retail rental reversions in the first half? And could you also share where retail sales are as a percentage of 2019 levels? And also what kind of occupancy costs we are looking at currently versus pre-COVID levels.

Okay. Retail sales right now, as I share earlier, I think retail sales, we are basically back to 2019 levels. While the footfall is about 20% lower than 2019 levels, which we typically referred to as pre-COVID, our retail sales on a per square meter basis has actually come up to 2019 levels. Roughly around CNY1,500, if you are familiar that. In terms of occupancy cost, I think occupancy cost, we have seen during the COVID years, a trend that rises up above 20%. That's typically where we are. But we have this year, for first half, we have seen come back down to normal levels. So I think that is also something that as regular rice. Yeah. I hope that answers your question.

The retail rental reversion that is negative.

Okay. So, rental reversions given the last three years has been COVID, right? So we were tracking say mid-teens negative for the whole or maybe better part of last year and early part of this year, but we have actually improved to high singles. And given the three COVID years where we've been signing lower rents, moving forward, the rental reversion that will come in the year 2024, 2025 are likely to become positive. So that's our anticipation.

And for China New Economy it's a mild positive rental reversion. But some of your peers, and I believe even CLCT is looking at possible negative double digits, would it be a similar outlook for portfolio?

No. So for new economy assets, right, we're actually talking about business parks as our bigger portfolio. Business parks goes back to companies are investing in China, and there is that confidence trap, businesses are a bit more conservative. So for us, we see more cautious business expansion plans, but our rental reversions remain positive for our new economy assets. Because our occupancies are not actually come down it's actually held stable. So our outlook is that with more efforts by the government to Investment promotions, that we have seen so many delegations from China come to Singapore trying to attract investments, sorry, into China, when the FDI stabilizes and it starts to climb again, it will benefit our New Economy asset classes. We do not see the rental reversions going into the negative territory at least from our projects.

Okay, thank you. Before we end maybe I'll invite, Chee Koon, some key takeaways from you.

Thank you all for coming and for all the support as always. Just want to assure you that we are working extremely hard. Simon and his team is on the road a lot to continuously to raise money from investors as well, and we'll continue to look for good deals that make sure that we do good for the CLI investors. Thank you.

Thank you. Chee Koon and thanks all of you for coming today. There are refreshments outside please help yourself and thanks viewers online. We'll see you next time, actually full-year 2023 in February next year. Take care.