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

Good morning, everyone. Thank you for joining us at CLI's First Half 2024 Financial Results Briefing. I'm Grace Chen, Head of Investor Relations. A very warm welcome to our analysts, members of the media, our financiers here at Capital Tower, as well as those joining us via webcast. Now, if you had time to look at our announcement this morning, you will know that our team in China and our team in the USA have been working really, really hard. They've been racing just like the athletes at the Olympics. Team USA, Team China bringing us good news this morning. So without further ado, I'll invite our Group COO to share opening remarks and to share what the teams have been up to. Andrew, please.

Thanks, Grace. Good morning, everyone. Thanks for joining us, again banking partners, capital partners, stakeholders, valued partners all around. First half 2024 briefing. When we started the year, if you remember, for those of you who were with us at the start of the year, we outlined 3 priorities and they all concern capital. First of the priorities was capital formation; the second priority was capital recycling; and the third priority was capital rebalancing. So I'll use a few minutes this morning before I turn it over to Paul to take you through the performance numbers, to just run through where we think we are on these 3 priorities at the halfway point for 2024. So, first off, capital formation. It's been a tough year capital raising all around. I was looking at the PERE numbers for first half globally. It's the lowest since 2012. So over 10 years of capital raising tracking data, this is the lowest in 12 years. Globally, it's about $60 billion. And of that, Asia is about $5 billion, allocated for Asia. If you compare that to where we were -- where we are this year-to-date, we're about 10% of that $5 billion allocated. So not bad. Okay. We are punching, I would say, at or slightly above our weight. I just wanted to give you some context on capital raising as a whole. If you think about where that money is going, 90% of the capital raised globally is going into 2 sectors, living and industrials. And of the different strategies, the majority of the capital is going to value add. And this is understandable, right? So I think back again to what we've been doing this first 6 months of the year, 4 of the 5 funds that we incepted and raised are in these strategies. So setting the context, we are listening to our investors and I think -- and we are confident that we are doing everything we can to punch at or above our weight in terms of capital formation, notwithstanding the fact that this is a very difficult challenging environment, worst in 12 years. If I look across the other fee earning verticals that we have, and Paul will take you through this in a few minutes, I think we're doing okay. Our platforms are doing well. Lodging management, strong year-on-year growth, high single-digit; commercial management, strong year-on-year growth, high single-digit. Public funds flat, caused by event driven, which I think, again, understandable given where rates are and the challenge for core product in particular to formulate capital and go out and raise capital and deploy. But I think things are turning the corner. I think we all agree widely consensus view is that rates have peaked and if they start to now moderate back down to a higher for longer, but a more moderate normalized rate, that should open the window for core product to begin to go out and formulate capital again and deploy. So overall capital formation, I think our fee income business 4% PATMI growth year-on-year. Was that right? I think about 4%. I think that's a credible number in the context of what I've shared. Let's turn to number 2, which is capital recycling. Okay. This one, we were very clear. I think at the start of the year we came out to say we want to prioritize capital recycling over potentially making sure we sell at the absolute highest point of the asset value, because we appreciate the importance of capital recycling in this context. Why is capital recycling important? We want dry powder for what we think is coming. We want to seed new product, we want to pay down expensive debt and we want to potentially buy back shares. So for these 4 reasons, capital recycling takes priority over maximizing portfolio gain. And again, if you look at our first half results, as Paul will share with you, we are roughly 2x of where we were same time last year. So I think we're just over $1.5 billion in total value, gross value recycle. So we're past the halfway mark of our annual $3 billion target. And I think we are confident we will get there by the end of the year. So this is a marked improvement from where we were last year when literally the marketplace was dead, right. So that's again another promising sign that we are starting to get back to our run rate, where we -- which we have set for ourselves. Lastly, let's look at capital rebalancing. Our story to our stakeholders has always been we want to be a diversified capital manager. We see value in being diversified, and Asia is a heterogeneous marketplace. And that's where I think our strengths really come to the fore. When we set ourselves out, we have 3 core markets: India, China, Singapore. The way CapitaLand has evolved over time, we have 2 of those 3 markets are large, China and Singapore. We find ourselves currently in this deglobalized, multipolar system that I think is going to stick around for a while. It just drives home the fact that diversifying our business is even more important these days. You can't rely on any one market to give you supernormal or the types of returns that you may have been used to in the past because things evolve so quickly, the world is incredibly uncertain. And if you put all your eggs, or too many eggs in one basket, you run a disproportionate risk that you may get yourself into trouble. So it only serves to drive home our priority. We want to increase the diversification of our portfolio and our business. And again, if I go back to the point of looking at our 2 core markets, where we have a higher than, I would say, normal exposure, they are Singapore and China. If I ask for a show of hands, which one concerns you guys more, I don't think we need to do that now, right. So with China, I think we're very clear. We want to better -- we achieve a better balance in our exposure to China. Now, you can do this in 2 ways. You can directly reduce the China exposure, or you can raise everything else outside of China. So Asia ex China, let's call it. Of these 2 strategies, we much prefer the latter. Okay. And we have a specific strategy for China, which I will touch on slightly, and I think most of you know it already, and that is China for China. But for China -- for Asia ex China, it is, I would say, priority number one for us now. We've acknowledged that we are underweight in key Asian markets like Japan, South Korea, Australia. And so going forward, and Chee Koon will touch on this in a minute. It is incredibly important that we execute on this in order to achieve better capital rebalancing. Otherwise, we will fail in our commitment to our shareholders. Again, it is illustrative that 4 of the 5 new funds that we incepted first half are all in these markets, right, Korea, Southeast Asia, Japan. Hopefully, there will be more to come in other markets around Asia, such as Australia. So the priority on capital rebalancing is absolutely to grow Asia ex China. And I don't want to say definitively, but senior management is 100% focused on this. In terms of China per se, the strategy is a bit complicated because it involves a pivot. A lot of our legacy Chinese product is U.S. dollar, high on capital employed, right. Our stakes in our funds are high. Stakes in our -- some of them are still on balance sheet. So in order to achieve this, we need to do 3 things. We need to reduce the capital employed by reducing our share of the balance sheet into China. We need to pivot from U.S. dollar to RMB in order to get to a China for China product and then keep FUM and fee earning hopefully at the same levels as they are today. Otherwise, we will suffer a loss in fee income earnings. So this is a delicate dance to accomplish with illiquid real estate and limited number of capital partners and lots of pressure from everybody. We're not going to cut off our nose to spite our face. We want to do this in a disciplined way. We want to do this in the correct way. And I think the announcement yesterday of what we managed to do is exactly the kind of business that we want to do where we accomplished the same 3 things. We sold down balance sheet asset, we created FUM and we switched into RMB, and we did it in a way that was not a distressed in any way, shape or form. In fact, we've recognized good portfolio gain in the process. So it's no coincidence we released the announcement yesterday because we wanted this to serve as a template for those of you who are looking to us to do more of this. And I'm sure there are many of you out there. The stock price is indicative, I think, of the impatience of the market, and we acknowledge this. But is it -- does stock price deserve where it is right now? I don't think it does. It's an acknowledgement of the impatience, perhaps, of the street and the desire to see much more of what we were able to do yesterday. So I, first of all, take a minute to ask Tze Shyang to stand up and take a bow. Please. Okay. Yes. He's not been doing much bowing lately, except to say sorry, but this is a very important moment to acknowledge the efforts of the China team where we were able to accomplish all 3 things. We will not always be able to do this. So sometimes we have to take a commercial call that we check 2 of 3 boxes or we check 1 of 3 boxes. But it's important to demonstrate that this is something the street needs us to do. We will do it. And we want to do much more of this, hopefully in the next second half of the year. But absolutely going forward, as you see, the capital employed into China reduce, but the funds under management hopefully stay where it is. So we maintain our growth in fee income, but we reduce the quote unquote, exposure to China in a sensible way. So I hope you guys can understand the subtlety of and the nuance of what we're trying to accomplish in China. It's not just a hard cut or a reduction. It's a smart way to pivot. But it takes time because we're dealing with an illiquid asset class and there are not that many people out there who are willing counterparties or are able to take on what we want to do so quickly. So we have to be measured and targeted in who we talk to, to be our counterparties. Yesterday's institutional -- unnamed institutional investor was one such counterparty. And there are others out there whom we are talking to. We're confident we can produce similar results for our stakeholders. Okay. So these 3 things I leave with you surrounding capital, they should not be of surprise. This is who we are. We are disciplined. We're absolutely execution focused. Are we doing it as quickly as we would like? No. That's a function of markets, function of uncertainty, function of changing priorities by our stakeholders, et cetera, et cetera. There's a lot to navigate through. So we are also very careful. We don't want to make mistakes. We don't want to go down a blind alley and then have to turn back again and apologize to everybody. So we will be disciplined, we will be patient. It is probably taking longer than you guys would have liked, but trust us, we know what the issues are. We know what we need to solve for. Okay. So I think that's enough heavy duty stuff to start the day. Let me turn it over to Paul to take you through the numbers. Thank you very much.

Thanks, Andrew. Andrew told us he needed 4 minutes. Okay. Good morning, everyone. It was this year, but Andrew covered a lot of, I think, what's important for us this quarter or this first half. So I'm just going to run through very quickly some of our numbers. I'll skip straight to this. So I think 2 things for us this quarter. One was really the divestments, which puts us on track for future growth. The second is the change in profile, not necessarily how we wanted it to come about, but we continued to see growth in the fee related business, which is the intended part of the pivot. Growth there was slightly slower than we wanted, and the real estate investment business has come down as a proportion. This was always the intended direction of travel. Unfortunately, growth on the top has not been as fast as we would like, but it is still growth. And then on the bottom, obviously, we've been facing a little bit of challenges around interest rates. But we would expect this direction of travel to continue. We're never going to be 100% 0, but from 63% over the second half of the year, it'll rebalance a little bit, but 60% to 80% fee related earnings is probably about right for us. So first half numbers. First half was a little bit challenging for us. We are hoping to make that up in the second half. But if you look on the left hand side, you'll see our total profit numbers down slightly or our operating profit numbers down slightly. The dark blue at the bottom, that is our fee related income. And you can see that up $8 million, $7-odd million. It's a little bit slower than we had wanted. It's an 8% growth for us on the top line for the fees. We would like to get to double-digit growth. That's always sort of been the intention. On the top part where you can see that big drop off is our real estate investment business. So this is our stakes in our REITs, our funds and balance sheet assets. So we took a little bit of a hit on the interest rate side. Interest cost was higher. We are hopeful that second half of this year that starts to reverse a little bit, and next year, hopefully that comes down. So this impact -- the impact of interest costs, which was the biggest swing for us, hopefully comes down. We also had a little bit of FX impact on the foreign exchange side due to the strongest Sing dollar, a lot of our currencies flowing back, some of the account receivables that we have in denominated in Japanese yen started to come down and affected us as well. So hopefully we have a little bit lesser impact there as well. And I'll spend a little bit more time talking through our real estate investment business. Portfolio gains largely minimal. So we announced as of yesterday, $1.7 billion worth gross asset divestment, $1.6 billion effective. That's not fully reflected in this number. So this is really just divestments up till 30th of June, which was really just about the sort of $600 million or so. So you don't see the full impact. But I would say in general on our divestments, we're divesting just a little bit above book on average, probably 1% to 3% above book on average. Some slightly below, some slightly higher. So we don't expect portfolio gains this year necessarily for the previous divestments to be a big contributor. Depending on how the second half goes, potentially we get some gain, but our main focus is really on improving the operating numbers. And then on the right-hand side, you can sort of see the total summation there. And year around, for first half down 6%. Hopefully we can try and make that up. So on the fee revenue business, you can see here the 4 different verticals that we run by. On the left-hand side are listed division, which is generally our strongest contributor both in terms of -- on the funds, the revenue side, but more importantly from a profit contributor. It's the best margins for us, down slightly and this was really driven by slower activity among the 6 REITs in the first half. Again, for this one, hopefully, if interest rates do start to turn, hopefully we are hopeful that in the next few months we'll see a pickup of activity there and see at least a certain degree of growth. Obviously, even if you look at year-on-year, first half was slow -- last year, first half was actually slow. In a normal year, activity is actually usually about double of what we have seen here. So we do expect this pace to pick up. On the private funds side, we had a little bit of a nice uplift. We got some performance fee from one of our country funds that outperformed and received quite a fair bit of carry. So we saw an uplift there in the private funds management, recurring, as you can see, moved from $46 million to $48 million. So slight growth there. We think we'll continue to see slight growth on the recurring side. Again, slightly slower pace than we would like, but with the $1.1 billion of funds raised, that should tick up slightly too. Lodging management, I think from a top line number at 4% was slower than expectations, but that was also because we had a little bit of one offs over the last year first half. If you look at the recurring component, which is really sort of our base on the management contracts, it was up more about 16% to 17%. And we expect that pace still manageable going forward. So you would see ideally lodging management growth pick up as well. Commercial management, a nice step up here. That is partly due to some of the restructuring on fees, which I think we mentioned for those of you who dialed in for the first quarter briefing, those of you who also follow CICT. This is just a restructuring some of the what was originally done as reimbursables got moved into the revenue line to be in line with the other 5 REITs. But still -- it is still high single-digit growth on the normal base performance. So across up 8% overall, funds fees largely stable, 80 bps and $46 million just for the funds, 80 bps overall margin has improved. And on the margin side, we are making efforts as a group as well to relook our cost base. And we are trying to optimize costs so that even though the top line growth may not be as fast as we would like, we expect to trim a little bit of cost and improve our margins. So this is just a little bit more on the activity over the -- for the 4 verticals, maybe just to highlight 2 on the listed funds side. While there has not been a lot of investments and divestments, we expect that activity will pick up over the next 6 to 12 months. We have been very active on the AEI components, so actually if you look at our 6 REITs, there's almost $1 billion worth of asset enhancement going on. And this is important for us also as this improvement on the income also contributes to our real estate investment business. So the REITs have still been active on that front, we expect that activity to pick up. On the private fund side, we did raise $1.1 billion post yesterday's China Business Park Fund. So as Andrew has mentioned, we are investing outside of China a fair bit, $1.7 billion of the fund investments have really been focused on, I think, core markets for us. We look going forward to grow outside of our 3, so Southeast Asia, Japan, South Korea. We expect Japan, Australia, India to be markets that we will continue to see growth over the next 6 to 12 months in particular. And then just on the lodging side, we have seen actually, while revenue growth has not been as strong as we would have liked, as you can see from the number of units signed and units opened, this is actually outpacing last year, which means that as these start to kick in contributions, we should see that uptick as well. So that is our fee business now, 63%. On the other, 37%. That's our real estate ownership business. So on the left is just the breakdown for operating and non-operating EBITDA. Maybe let me just give you the color on the split. So in the middle is the split by geography. So what you would see is from -- and this is -- so this is before interest costs. So it doesn't see the impact of the higher interest rates. But starting at the bottom, you can see that it's Singapore for us. Singapore and Southeast Asia, this has come down slightly, whether it's assets on balance sheet or I through the REITs and funds, we had a slight decline in contribution, which is on a slight dip. China has actually held steady from an NPI perspective. We have -- this is now -- has some divestments included, but generally the numbers have actually been all right on the China side. Retail on a same store basis actually improved slightly, though logistics and office was down. For other Asia and non-Asia, impact here has been largely where the foreign exchange movements and the divested assets have been. So obviously we divested a handful of lodging assets outside in the region and that has contributed to the drop. You can see it a little bit more on the right-hand side chart. The right-hand side chart shows our breakdown by how we classify our 3 groups of real estate investment business, where we have the money deployed. You can see the [ REIB ], which is the bottom $340 million to $349 million. That is our REIT ownership. And as the REITs have actually improved on performance from an NPI perspective, you can see that uplift. Private funds, which actually is a fair bit of that is China has actually performed all right and it's held steady. The big drop for us came on the balance sheet investments and this partly, as mentioned, due to divestments. But it was also where I think we felt the bulk of the interest rate and FX movements because some of these assets are earmarked for divestments. So some of these want floating rates and they felt a little bit more impact. So as we divest assets, you will see this proportion in this shape and that 98 which is the balance sheet investments over time, we expect that can potentially come down as we divest more assets. This is just to give you color on the different markets. As mentioned, I won't spend too much time on this. I think most of you know, Singapore continues to do very well. CICT released results yesterday, very strong, positive reversions. Office and retail high single digits, middle double digits. That continues to be the case for Singapore. India continues to do very well. Sanjeev and Gauri, I think, also released very strong results for CLINT. So you would have seen that. China, I would say we have seen retail on a same-store basis, as mentioned, perform slightly better, even though as you can see at the bottom, most tenant sales down slightly, but footfall has improved. So while the market still has its struggles, if you look at the part on top on the NPI, the minus 1.6% is actually in renminbi and the -5.6% on the NPI is in Sing dollars. So on a China basis, the portfolio has actually performed about flat down slightly. Where the impact has been for us as a group has really been on currency translation as the Singapore dollar continues to strengthen. So, hopefully, as us interest rates come down, Singapore dollar, if we get a little bit of weakening against other currencies, that will actually improve. Divestments, so this part has been positive for us. We're up to $1.6 billion of effective divestments, $1.7 billion gross divestments. So a lot of this has been balance sheet exiting out. We expect to comfortably hit our $3 billion by year end. We would be expect to be on track. I think we'd be very disappointed if we did not beat that number. This is allowing us potential for growth and this is where we think over the next several months we will be able to redeploy whether it is new funds, M&A and we'll be able to grow from that point. So this part is important to us. We expect to continue to see divestments out of China, out of the U.S., and potentially some of the other assets we have on balance sheet as a group. So this is just to give you a sense of what is left on this. So this ties to those 3 buckets on our real estate investment business. If you look at the top left, you can see our carrying value for the different effective stakes. The one I want to highlight is obviously just on the top left. This is what we have on balance sheet and is potential pipeline into funds or REITs or selling to third-party. From last year, from one year ago, we dropped from $9.5 billion to $7.9 billion. If you include the announcements that we made as of today, which includes yesterday, we're actually at $6.8 billion left on balance sheet. So we still expect to make more progress on this. About half of this is still China. Obviously, key assets that we -- also have here, besides, we still have us multifamily, we have business park in the U.K., we have ION Orchard, all contribute to the $6.8 billion. Over time, the intent is to divest out of this over the next 3 years. And we do see options or we do see opportunities for redeployment in the coming 6 months. Private funds largely stable. This has been current -- some currency issues for us, slight decline in value. And then for the listed funds, we expect this number will fluctuate up and down a little bit. It's gone up slightly because we've decided, given where the REITs were, to invest, a little bit behind some of our REITs, and we took up the distribution reinvestment program, the DRPs, for a couple of our REITs. So we do this on occasion if we feel the need to support some of our REITs. So that number moved up slightly. So over time, though, from an overall viewpoint, what we have on balance sheet, we expect this will reduce as we commit more behind the fee side of the business. And then maybe just the last slide, it's really just on our capital management. As Andrew mentioned, we are doing a China for China strategy on the equity side. But also increasingly on the debt side, we issued our second trench. Thank you to some of the banks that are here who helped us with that. We did second RMB 1 billion tranche of Panda Bonds in China. We expect over time to do more as well in the market and that had the benefit of bringing down interest costs but also rebalancing our exposure a little bit. The other thing to mention is share buybacks. So we've bought back about $300 million worth of shares. This is less than -- so it's slightly complicated because our mandates are not on calendar years. They are from AGM to AGM. But effectively that would be 40% or less than half of our typical annual mandate. I think we look at share buybacks on 2 fronts. One is, I think as Andrew mentioned, we do think our shares are undervalued. So that is one reason for buybacks. The second is on a longer term basis, we think it makes sense to optimize our equity base to a certain degree. As we divest a lot of assets, the key is to sponsor new funds, sponsor new REITs, help our REITs grow and do M&A. But when we look at all of the numbers, given the rate of divestment and the amount of divestments we can potentially do, we believe there is room for us to shrink our equity base as well, which is why you see us active, and I think we lead the tally at least among most of the corporates this year for share buybacks. And then the last thing on this slide is on the bottom right is our interest cost, 4.1%. This is up about 20 basis points from same time last year. We think this should be about the peak for us. We think this will come down particularly as particularly potential cuts. And as we start looking at our refinancing numbers, we think we shouldn't see any more increase. We should be about this number, if not moving downwards from an interest cost perspective. So that will also help our P&L going forward. And with that, this is the last slide. This is similar slide that we've been showing for the last couple of quarters, just really on where our priorities are. And this ties to exactly what Andrew mentioned. And so with that, I'm going to stop here and invite Chee Koon and Andrew to come up for Q&A, and if Chee Koon wants to say a few words. Thank you.

Thank you, Paul. Chee Koon, would you like to start with a few words?

Okay. Thank you, Andrew and Paul. Actually, they've given such a good summary of what I wanted to say. Maybe I'll just cover 2 points. Earlier, Andrew mentioned about building a more balanced and diversified portfolio. That's a key focus and key priority that we will be doing. Essentially, I mean, just to guide the market outside of Singapore, we do not envisage that any of the markets should take more than 20% of our capital allocation, so that we can build a more balanced and well diversified portfolio going forward. Okay. There are 2 ways we're going to do this. We're going to do this through active capital recycling and the more active growth through the proceeds that we have recycled from the assets in seeking new opportunities to grow the presence and capabilities in markets. Initial focus will still -- I want to highlight on Asia Pacific. I think there are things that we need to do in Australia, there are things that we need to do in Japan and Korea, and I hope we will be able to share some good news with you in the coming months. The idea is to make sure that we are strong in Asia Pac first before we look at broader capabilities in Europe and U.S. Asset management business is really about building people capabilities, people who can find good deals, people who can execute. If you can do that well, the money will flow. It's not just about expanding presence everywhere and you in the end cannot deliver the returns for the investors. Okay. So I just want to leave that point with you on the balanced and diversified portfolio. The second point I want to make is that the environment -- operating environment has been challenging, I mean, with the higher for longer interest rates. And there are many things, unexpected things have happened this year. Nobody expected U.K. to call for election, nobody expected France to have an election, nobody -- I didn't expect the outcome of the India election. I also didn't expect the changes that's going to come out in the U.S. election. Many uncertainties, the recent market volatilities that happen in Japan, I mean, throws up many, many uncertainties in what we want to do. Fundraising has been tough. In fact, many private funds players have found difficulties in trying to find liquidity. So I must at least commend the team who have worked tirelessly in trying to find liquidity for many of the assets that we are seeking for. Of course, we hope -- we always wanted to make sure that -- if life is perfect, we want to be able to share a lot more good news, whether it is new partnership formations, new acquisitions, new M&A. But life is not perfect. We can't time it all in just by the first half results to share things with you. But I want to assure you that the team is working extremely hard and we'll share good news with you when we are ready. But having that ability to recycle the proceeds give us a lot of flexibility to deploy and to grow fee income and to capitalize on, I would say, some of the dislocations that we are starting -- that we are actually seeing. But the question is whether you can buy at a price and execute it well and get the financing done. I mean, there are many deals that are available on the market today. The question is, are you happy? Is it going to be accretive? Is it going to be strategic? Is it going to build a long-term enterprise value for the company and for our shareholders? So I just want to leave that with you and we can open for Q&AA. Thanks.

Thank you, Chee Koon. But before we take the first question, just to viewers online, you can also send us your questions by posting it in the questions tab. And with that, I'll start with Mervin. His hands are always the fastest. Mervin, please.

Mervin from J.P. Morgan. Anyway, Chee Koon, congrats on making the business more asset lighter, significant progress in terms of percentage of income coming from the fee business. May we start off your key priorities this year, which is growing the Korea, Japan and Australian businesses. Those markets, we do have bigger, more established players, strong competition. For those geographies, do we need to hire more people, acquire more -- acquire platforms to make a material improvement in terms of fundraising those markets? So maybe some comments on progress on that. Then second question, in terms of capital management, obviously we have discussed about shrinking the equity base over time. Assuming you successfully execute divestments from on balance sheet assets over the next 3 years, is there a target in terms of annual share buybacks? Is $0.12 sustainable in the medium term given a dropping income from the investment properties?

Sure. Thanks, Mervin. I see you have gotten Grace to let you ask the first question again. Well done. So on the capital base side, we do -- internally, we do have a target. I think at this juncture, together with the share buybacks, I don't think we're ready to announce a specific program, though I do think going forward we probably will be able to. I would just say at this juncture, I mean, if you look at our mandate, our mandate allows us to buy back 5% of the base, and 5% of the base equates to probably about $600 million, $700 million. So that is limits unless we change our mandate externally. But if you look at earnings and our goal to get to a double-digit ROE, right, ideally we want to get -- historically we've been more $800 million, $1 billion plus type profits, which is a fairly good goal. But if you're at a $1 billion, $1 billion odd profits, it means your equity base can only be about $10 billion to get to a double-digit ROE. So I would say we will happily share with the market, I think a more detailed plan when appropriate, but I think from a framework and a thinking point of view, we kind of look at those as boundaries. So we're currently at $14 billion equity. So we certainly have room, and I think I have flexibility to bring that down. In terms of the dividend, we do think our $0.12 cash dividend is quite sustainable. If you look at it from 2 fronts, if you look at our running cash flow, and cash -- operating cash flow, and I didn't mention this earlier, but operating cash flow looks lower this first half because we took the DRP from CLCT and CICT. So that brought down the cash component. So we have a little bit of flex there. But generally the operating cash flow is actually stronger, which allows us to cover the $0.12 dividend. Going forward, on -- whether it's $0.12, obviously, we did the distribution in species a couple of times over the last 3 years. I think there is a component that we may consider a mix, but certainly $0.12 or even up to where we want that $0.18 we think is quite manageable for us.

On the new market opportunities, I think we will look at M&A of platforms. We may look at lifting teams, doing co-GP type arrangements, capitalize them with some seed GP money, help them to raise money, and so that there is a greater ownership and there is a lot more entrepreneurship. I think there are different ways to grow AUM in a certain vertical and we can lift a team of people that we think are highly entrepreneurial. We have done that in India logistics. It is a co-GP arrangement between us and team that we lifted. And today we are the second or third largest logistics player in India. So actually we are -- the entire model of CLI's business has changed very drastically in terms of compensation, because we want to create a lot more entrepreneurs in the markets that are deep, that can build good, deep insights, they can find access to good deals, they can raise money, and we do co-investments that carry. Essentially, that's the way we want to do to create more growth in the different verticals.

Okay, Mervin, you're good. Go with Derek next.

Derek from DBS. Just 2 questions for me. My first question is on the entire fundraising environment. I'm just wondering whether going forward, right, given where interest rates are going to be, is real estate a sector that's still attracting the most amount of capital, i.e., let's say, for example, you could raise $10 billion previously. Now is -- your partners willing to just give you another $10 billion, or is it going to be a $5 billion? So that's one thought around the fundraising environment. The second question around that would be for your existing investors in your private funds. When these funds were to -- and I'm not sure whether there's any good end in the next couple of years. Are they still willing to roll with you into a new fund? Or do they want to reduce their capital? So just one question around it. Can I just one more? The last question I have is on cost, right. I remember, Paul, you mentioned that margins are 50%. I thought it's quite decent. You still wanted to bring it higher. Is there a target? And I think there's always -- you need to invest to grow, right? So what are the avenues they can cut? So, these are all my question.

Okay. Thanks, Derek. I know your strategy. You choose to sit next to Mervin, so you are assured of the second set of questions. It's working. So let me take the first couple. Simon, I'll also invite you to add comments if you like. Broadly, allocations to real estate have come down, I'd say. It is an interest rate sensitive asset class. Does that mean the pie is too small for us to grow our business? Absolutely not. I think it's important to recognize, perhaps where in the real estate space allocations are coming down and wherever allocations are perhaps still very interesting for us to play into. So if you think about the new products we've raised and incepted, they're all in thematics, generally, thematics and strategies like value add. And this is where I think investors are still interested to deploy. Maybe your cores and your core pluses are more challenged right now, but precisely for the reason you mentioned, rates are high. So your spreads to borrowing costs that you could get with other products, potentially even credit, are no longer as compelling as they once were. Okay. Let's remember that things go in cycles. And I think if we agree that rates have peaked, the pendulum will swing back, because core has wonderfully strong benefits of its own, right. You obviously lower down your risk return, but you have less risk. So if you're going to thematics that have longer play, longer runways, wellness, living, digitalization, disruption, logistics, all of these are still highly topical, highly relevant, lots of interest when we talk to investors. And again, consistent with the type of product that we are looking to manufacture and put out there. So again, all of our products -- excuse me, 4 of our 5 new funds this year are in those thematics. So I'd say, yes, broadly, but nowhere near to the extent where we would be concerned about not reaching our growth targets. It's all about putting out what is relevant and what your capital partners are asking for. That was question one. Question 2, any rolls? As Paul has mentioned before, the bulk of our legacy product is China, U.S. dollar. So this is where the complexity I talked about comes in, right. If we have to, we will let it go because we are very clear about the mission. But what would be ideal is you roll, convert and sell down at the same time, which is what we did yesterday with iHub. So is there a risk that the U.S. dollar product falls off? Yes. And we don't replace this with the roll? Yes. But the challenge, therefore, for the team, not least of which is under Tze Shyang in China, is how do we replace that ideally, dollar for renminbi, or renminbi for dollar to keep the FUM where it needs to be, with the requisite fee structures, the requisite different capital partners who are onshore in China, maintaining our presence, getting more capital, like achieving our greater diversification, all of these very important goals that you need to sort of solve simultaneously. So, not easy, but can be done, as you saw yesterday. Just quickly with Simon, anything you'd like to add, Simon on...

I think -- and good morning, everybody. I think, Andrew summarized it very well. I think the high level comments is that private markets continue to grow in terms of investors wallet, right. So it's grown over the last decade from 25% to now, like 30%, 33%. So that's a good overall trend given that we're in the real assets space. And even if traditional real estate is quite stagnant at the moment, that might free up as interest rates come down globally and the U.S. uncertainties start to recede with the recession. But we are pushing into making good progress in other niche sectors in addition to the Southeast Asia wellness sectors, in markets like data centers and credit. So I think that's a space to watch carefully. And that's where we built really nice capabilities. And the difference we have still in this market, where all GPs are under pressure, is that we have this on the ground footprint, where we're in all of that deep markets where we've got people on the ground and seeing the first signs of deal flow starting to free up a little bit. And I think that's a very encouraging sign.

Yes, I always like to avoid talking about that, but maybe just on the Perpetual or the Fund Life as well. And, you know, Grace's team does a good job of putting the materials together. In the slide pack of the bank, we have the breakdown by capital types. We only have 16% coming up in the next 5 years. So there's not a lot, I think, that we're worried about rolling. 72% of our capital is perpetual. And so we are not particularly worried about that role coming off. I think the big push for us is growing that, and so that's our real focus. On the cost side, yes, 50% margins is good, this first half. That is partly driven by the performance fees that we receive from the private funds. So we are not at 50% on a run rate. I think we would like to be closer to that on a running basis. We are still hiring and investing behind for growth. So in the sectors that we are looking to grow in, some of the areas of the private funds are in lodging, we are still hiring. But I think with any big organization that has gone through a transformation like ours, there are pockets of maybe inefficiency or less relevance in the new model for the business for us than before. And so I think our teams, our business unit heads, our department heads are all relooking their organizations to see are we really built for the future? And I think as we do that, we will find opportunities to use technology or streamline processes, cut down reports in order to try and streamline the amount of work we have to do. And if we can do that, I do think that we'll be able to see some cost reduction there.

Okay. Brandon, next, Citi.

Chee Koon, just 3 quick questions, right. The first one would be on your first, when you commented that no other markets outside Singapore is going to be more than 20%. So I assume that includes China. So if so, when do you think we could see that number panning out? That's my first question. The second would be, saw a very nice data center chart in the deck. So what's the strategy there? Do you intend to acquire more, develop more, or what -- is there any target megawatts that you're looking at? That's my second question. The third one would be on your REITs. So basically, I think we have seen quite a lot of sponsors of late giving more support to their REITs, whether it's in terms of supporting in the preference offering, or you're looking at more redevelopment, joint redevelopment activities, things like that. So is that something which you're looking at if, let's say, the higher for longer interest rate environment continues?

Thanks. I'll take the data center question. So in CapitaLand, I think we have developed our data center business quite significantly in the last 3 years. We had 4 data centers in 2019 when CapitaLand merged with Ascendas-Singbridge. And today we have about 26, 27 data centers in different stages, either completed or under construction. So we -- because we have got different capital pools, we are business model agnostic. So where it makes sense, we acquire portfolios of completed assets. And that's what we did in Europe. We acquired a portfolio of 11 data centers and then added on 1 more. So we have 12 operating data centers in Europe. Some of them are under master lease, some are colocation. And the good thing is that we are one of the few institutional investment managers that have the capacity to design, develop, as well as operate data centers. So we are not just owners of the assets, we can also operate assets. So I think that's a very unique capability that we have and that gives us the flexibility to talk to customers and depending on their needs, we provide the solution. So it can be, as I said, existing data centers that we acquire, developed new data centers, greenfield data centers, as well as built to suite special data centers, depending on the customers needs. So in India, we are currently developing 4 data centers, very sizable ones, and we are in very interesting discussions with customers on that. We have got 3 data centers in China, 2 are greenfield under development, and we are very actively looking at development opportunities in Japan, Korea. Those are the markets that we feel have the most interesting returns profile for us. People ask us about Malaysia, so I'm not saying no. But at the end of the day, we cannot act like kids in a toy store. We will only do developments where it makes sense, where we are confident about managing the risks. Obviously, AI is the most used word in the world today. So of course AI is going to drive strong demand for data centers. But we are also realistic that we have to observe where all this goes. But I also do want to make the point that even before AI came, the demand for data center capacity, especially in the Asia Pacific region, was already huge, just driven by cloud players and enterprises requiring more data. So AI is an add on. So I think, I just wanted to make the point that we want to grow, but we also want to grow in a disciplined manner. And what differentiates us is that we have got capabilities across the whole data center value chain. Thank you.

Okay. On the point specifically around China, the idea -- I think I mentioned earlier, there are 2 things that we will need to do. One is capital recycling, and the second thing we need to do is to step up in terms of growth and capital deployment in other markets. We have a Board Strategy coming up. I think in terms of time line, maybe we will share with you at the Investor Day that we will be having in November. I think then it will be fairer for me to give you what is the time line that we are looking at. But I want to take some time to just talk about the China issue. China is a very big market. There's huge pools of capital in China. If you look at what we have done since 2020, 2021, Tze Shyang and his team in China has raised almost RMB 50 billion worth of capital to grow our China business. Is the real estate sector today a bit more challenged today? Definitely it is. I mean, there's big macro challenges and stuff. The team has strong operating capabilities, sweating the assets, trying to make sure that every property that they have is running at better occupancy, getting better rents than the other competitors. They have a strong team, and I say that because we went in a lot earlier than other people, locations generally are superior relative to the others, so put them in a good stead. Do we want to continue to tap on growing renminbi with very little of our balance sheet exposure to grow fee income? I think that's something that we want to continue to do, and I think that the team is committed to do. So, I just want to make sure that people don't misunderstand. I think there's a lot of capabilities that we want to continue to build, to tap domestic capital, to build a much stronger fee income business in China. And at the same time, we will want to reduce our capital allocation. So I just want to make sure that I communicate this point very clearly to the people here. On REITs, we are major sponsors, and I will say that we are very responsible sponsors. We want to make sure that all the REITs do well, continue to do NPI growth. If there are good assets that we can acquire jointly with them, we can do joint development with them that we can support in terms of even selling them assets to allow them to drive the fee income -- sorry, to drive the DPU. And for us, the fee income will be perfectly happy and prepared to do that. I think to be sponsors and to continue to earn the right to be a good sponsor, I think we need to be able to do that, because I think I mentioned to -- I've said this many times, we want to make sure that we can deliver consistent, high quality earnings to our REIT unit holders, to our CRI investors, and also to our LPs in the private funds. That's the business that we are in. If we cannot do that, we won't be able to raise capital.

Okay. We see Dexter from Bloomberg.

Dexter from Bloomberg. A few questions, technical questions first. Is there a reason why you guys have stopped breaking out Singapore alone in terms of AUM, FUM and all that? And can you just clarify a bit on what percentage that takes up now? On the China point, I take your point on China. You say that you guys -- you say what you want to say on China, but I know that your AUM actually increased from 1Q. This is about 35% of AUM now for real estate. So in terms of being candid about what you want to do in China, can you give us a bit of sense of how much discounts, or are you willing to accept deep discounts, especially in terms of this property crisis that we are having right now in China. It's ongoing. Or are you all prepared to continue going along this fund, trying to offload your assets to funds and all that? Is that a strategy going forward? I have one more question, but I'll leave it for later.

Yes, maybe just in the first one. On the reason for grouping Singapore with the rest. I mean, part of that is because we now are making a bigger push and to do more in Southeast Asia, and we now have Southeast Asian funds. So it's a little bit easier for us to just group it together. We have a Southeast Asia logistics fund. We have a Southeast Asia wellness fund. We find that as a bucket. It is easier for us to group together because we raise the money, and it's not necessarily deployed in any interest in Singapore. We show in our charts, Southeast Asia is about 42%. The bulk of that is Singapore. About 40%, almost 41% of that is Singapore. And that's really driven by CapitaLand Integrated Commercial Trust and CapitaLand Ascendas REIT. Those are our large ownership blocks in Singapore. So over time, that composition will change. We expect we will grow more in Malaysia, in Thailand and Vietnam, and then that portion for Singapore will come down. But right now, it's the bulk of that.

Thanks for the good question. I think the first thing I want to say is we are custodians for the capital that we manage. So boring a term that Andrew said, we have to be sensible. What we have been doing right now is we are recalibrating our playbook for China. We are pivoting to renminbi, right, China for China. So all that has been mentioned. I think that's fundamentally important to us. If we are just going to answer a question, how soon you want to bring it down to whatever the number is in terms of equity exposure. I would say, from the eyes of the capital markets, perhaps the answer is yesterday, everyone wants that, right. I used to go to bed at night thinking, tomorrow morning I'll eat carrot cake or Bak Chor Mee. But these days, there's only 2 words in my mind, R and R. One is recycling, the other one is how to recap. Because I don't know what is a blessing, when your Group CEO calls you every other night. You know the intensity, yes. So I think the message is we know what the capital markets are hoping to see, but we have to be sensible. We are not distressed. We look for opportunities. If you look at the last 3 deals that we did, recapping or divesting our assets to third-parties or into our new form funds, they all follow the same track of thought. Okay. We are very responsible. A bit of our assets in China on balance sheet that we have a bit more say, but a lot of it, as Andrew and Paul had said, they are in funds where we have a fiduciary duties to our LPs to deliver what is optimum and efficient. So again, pressure is on. We understand where we need to go to and we need -- what we need to do, but we need to do it responsibly. Yes. I wish it was yesterday, but give us a bit of time, we will get there.

Can I just follow up quickly. On the China divestments you have done so far, as -- do you have a number in terms of the premium or discount to book value that you have made? And on a specific point, it's been about 3 years since the restructuring, obviously. And obviously your stock price is where it is right now. I'm just curious, like in terms of your vision like, are you all still looking to battle likes of -- [ in leaks of ] Blackstone? And is this things that you all would have done differently in terms of the last 3 years?

Let me take the first one.

Yes. So just on the China side, so all our divestments are listed in the appendix. You can see the list of divestments. We haven't disclosed the specific premiums or discounts for the sales, and we do not necessarily intend to. But I can tell you that for the China assets that we have divested -- we have divested, all the recent assets have all been above book value. So we don't think that will necessarily always be the case for any of our assets in any geography, because we are committed to the capital recycling. On average, we are above book. But specifically for the China assets, we have sold all above book recently.

On your first question, the CapitaLand went through a major restructuring the last few years, first with Ascendas-Singbridge and then to split between CLI and CLD to where we are today. A few of us, we sat down last week, we reflected and say if we hadn't done first with Ascendas-Singbridge merger, that give us capabilities across different asset classes, deeper asset management capabilities, and if you hadn't done the restructuring, actually today the original CapitaLand listed today, we think that we'll have a very different conversation with the investors today. So I just want to say that being the management and the Board here, I mean, we have been responsibly in thinking of how to make sure that we create a business model that we think it's lasting, that can help to create the enterprise value. I think going asset-light building an asset management platform is what we want to do. We commit to do. We will get there. The restructuring happened in September 2021. Is it the best timing? If we delay a few months later, we probably couldn't have done it because the market wouldn't have been there. But if we didn't do it today, I think we will feel the pain of many of the legacy issues that we have to deal with. But even then, after the restructuring, we dealt with war, uncertainties, sudden spikes in terms of interest rates. Those are things that we can't control. But does that change what we want to do in terms of the vision that we have that we set out to do? The answer is no. We want to continue to do that. There are certain harms on the road. We just have to be nimble. We just have to pivot. But we are not going to take the eyes off the final picture that we have, which is consistent. It is not just at the management level, it is at the Board level,because we believe that if you build up enough capabilities to find good deals to create value, capital will come. Because if you can consistently deliver 12%, 15%, 18% for investors, and you have a pool of -- do you put money in the bank or do you put money with investors that can deliver you consistent earnings, good track record -- good track -- a good reputation, I think that, that business model is lasting. And we do it right, you can actually build very strong enterprise value by growing the fee income for the business. That's our commitment and we want to make sure that we can deliver.

Okay. I promise I will allow all of you to ask questions. I got lost. I will start with you Kiang, first.

Yew Kiang from CLSA. I have 3 questions. First one is on your mention on Japan, Korea, Australia. What's the strategy there? Because some of your peers have obviously divested out of Australia, but recently went back, in terms of which asset class we would like to know. And in Japan, obviously, the macro is a little bit different. Currency is moving slightly in the opposite direction. Rates are also moving in the opposite direction. So what are the interest in asset classes that you are deploying there? Korea also give us more color. Is it just data centers? That's the first question. Second question is on towards your $200 billion FUM target, would you consider infrastructure as something that is together with complementary to real estate? And then the third question is that you mentioned that you have $1.6 billion divestments, $600 million was recognized in first half, and about 1% to 3% above book was recognized. So can I assume that second half you recognize about $30 million divestment gains again? That's all.

Thanks you, Yew Kiang. Let me take the first 2 and the tough one, I'll give to Paul. So the strategies for countries, broadly, okay, so Australia, what do we see that's interesting? There's a structural opportunity in credit. And I think you see a lot of players entering into the Australian credit space. Is it too crowded? No. Are we too late? No. But we need to be, again, careful and targeted about how we enter. The other area that's interesting in Australia is lodging and living. Logistics has been very good to us in the last 3 to 5 years. I think from a cycle perspective, I think we're entering into a period perhaps where it will normalize out. Those of you who probably listen in to Claire's update will have gotten that from William and his team. So that, I think, are the opportunities we see in Australia. And so far as Japan is concerned, there should be no surprise. Lodging is highly sought after, highly desirable. We've been investing into that through various vehicles. Logistics is also an interesting one, although that is a crowded space. We are very careful about how we deploy and not overpay into that. And then data centers, as Mano mentioned. Korea office is -- Grade A office remains highly sought after. It's chronically undersuppling. It is interesting. It is one of the few markets where Grade A CBD office still commands high rates. And yes, we have to be careful about, again, overpaying, particularly with high construction costs and high interest rates. But there is absolutely no drop off in demand, none that we can see thus far. So I would say the Korea data centers, CBD office, credit in Korea, there's another structural gap appearing in Korea. So we're also looking hard into credit in Korea. So to specifically answer your question on markets, I hope that addresses that. What was your second question? Infra, broadly, we won't rule it out. There are, as you can guess adjacencies to real estate that involve infra, right. Different types of real assets can be adjacent to just your old-fashioned real estate. So that's something we will absolutely look at. But we're also mindful that you've told us before, please don't get distracted, don't chase too many things. Focus on what we do, what we do well. And what you don't want to see is us getting carried away and running off in lots of different directions. So we hear you on that. We want to be measured and at the right time, at the right opportunity, in the right country, in the right type of adjacent infrastructure, we will -- we are absolutely willing to invest into that if we can see how they can be synergistic together with our core business, which is real estate.

Thanks, Yew Kiang. Just on the question on portfolio gains, it's -- I would say on a general basis, yes, if we divest $1 billion, we'd recognize between $10 million to $30 million potentially in portfolio gains. The first half, which we put in the results, I mean, it's $35 million. That had a number of factors to it. There was a degree of completion gains from some of the stuff that ended end of last year. So we had some adjustments there. We had a slight markup from some of the DRP programs for our REITs, which is why the number doesn't necessarily tie to 1% to 3% of just pure divestments. I would say for the second half of the year, we will see the gain on the assets that we have divested in that range. But as mentioned, we hope to hit our $3 billion target, and hopefully we exceed that. So while we think of portfolio gains and some of the fair value movements less critical to us than growing the core operating PATMI, we still will expect portfolio gains to contribute more than -- certainly more than the $10 million to $30 million, assuming that we're able to hit our divestment targets by year end.

Okay. We'll have Tan Xuan and then Joy, and then we'll move to Wilson. Yes.

Can we ask everybody to ask all the questions, then we try to answer?

You can remember?

So, first question is on margins for the fund business. If I look at FRB, margins is down slightly, fund management margin is up. Does that mean lodging management margins is down? And can you share more colors on that? Second question is on PATMI. So, at a Group level, what we have seen is that fee income business is growing, but that's not enough to offset the REIB drop off, right. How should we think about the inflection point where we will start to see overall bottom line growth?

Joy, you want to also state your questions.

Okay, Joy from HSBC. So 2 question from me. One on fund strategy. We've not seen development or redevelopment fund for a while. And if you look at opportunities in this interest rate environment, developments are actually looking very interesting. Can we expect that to sort of reappear? And how should we think about the collaboration between yourself and CLD? That's one. And second question, sorry to go back to China, you have been trying to do R and R together, basically recycle and also rebalance to your RMB fund. I guess that strategy is good for your bottom line, but it also takes longer. Do you think that sort of return on a time adjusted basis is worthwhile? Or is there other alternative? Maybe just share some thoughts on that.

Maybe we can...

Actually, maybe we just stopped there for a moment. Okay. Yes. Okay. So on the margins question, yes, so fund management margins for the private funds are up due to performance fees, listed side largely flat, though down slightly because of the drop in income. Lodging actually did fine. Lodging margins actually up slightly year-on-year. The decline actually came from property management margins and that was actually more driven by the reclass because we moved the cost reimbursables to revenues. It just affected, the margin came down correspondingly. So from a profit viewpoint, saving for the commercial management business, it went up. Just the margin came down because of the top line growth. On the question on inflection point on the PATMI, you know, it's something that we're absolutely focused on. We can see that the FRB has to grow faster. We think the FRB will get a pickup as we do M&A, as well as when the listed funds start seeing more event driven fees. Both of that will help grow the FRB business. It is something that we do need to accelerate to make up for the drop off in REIB, and that is something that we're pushing very hard on.

Okay. So, Joy, your questions, if I remember, development funds and then time adjusted return. Okay. So development funds, yes, we also share your view. It's an interesting product, particularly in this environment of higher required returns, right. Your straight up core stuff is tough to get across the line. On the flip side of that, the complexity with development is construction costs, supply chain disruptions, et cetera, et cetera. So you really are talking about moving up the risk curve here. So you got to be careful about over promising and understanding your environment. So is this an advantage for us? I think in certain markets it is, particularly our core markets, India, Singapore, China, where we can have more control, exercise more control over the development chain and our suppliers. We have more of a presence there, and that is absolutely useful. Are we looking to do more with CLD? We are. We don't have anything announced this year thus far that is pure development, but there is stuff in the pipeline that hopefully will come out second half of the year. To your second question about time adjusted return, that's really the nub of the issue, right. The patience that the market has to allow us to see the Plan A through, right. And the Plan A is ideal. What we did yesterday is ideal, but it does take time. You got to line up all your ducks and you're not going to always have that ability to do so. It also links into the question on portfolio gain. Sometimes, we may not always sell above book value in order to achieve that speed of -- pace of capital recycling, right. So at some point we need to make a call. It is -- I think it's a moving target. The street will tell us whether we are on pace, whether they're happy, whether they're not happy by the stock price. Right now, clearly nobody is happy. So we know what we need to do. The ever evolving geopolitical, macroeconomic environment will also be a strong signal. It could get worse, it could get better. And that also then impacts and informs what that risk adjusted time based return could be, right. If things get better, we got more time. If China comes out with a major policy move that gives market comfort, all of a sudden, pressure can be much less. What is the probability of that happening? I don't know. So a lot of things are moving targets. I don't want to pin down to say, as Chee Koon said, we hit no less than -- no more than 20 in the next 2 to 3 years because it could be faster, it could be -- it could take longer, and also, again, function of where the market is in terms of giving us that time to do so. So, I think, the best reassurance I can give to you is that we are very receptive to the indicators around us, whether it's our stakeholders, whether it's what the market is allowing us to do. And then we need to constantly assess whether we need to course correct or calibrate, speed up, more time to execute Plan A, et cetera, et cetera. Investor day will be a good one, I think, because I think it will allow us to more fully articulate what we think that strategy should be or can be in the next 12 to 24 months based on our assessment of the current environment as we see it and what it allows us to do. But it's a very relevant question. I think it's how the senior management is going to sort of have to figure out in the next 12 to 18 months constantly because it's a very important question.

Sorry, just I didn't know [indiscernible] on time. But just to add to that, Joy, if the question is for some of these we are selling into funds, some of the China assets we are selling to third-party, for some of these we're just going to sell to third-party. I think Tze Shyang has a very clear asset by asset plan. Not everything needs to go into a fund. We expect divestments will happen just straight out.

Okay. We'll go to Wilson next.

Wilson from Morgan Stanley. Just 2 quick questions. Firstly, following up on the China R and R, could you remind us again what were your divestment targets for China this year? Was it $1 billion, $2 billion last quarter that was mentioned? And where are we year-to-date? And second, is just a follow-up on data centers and growth ambitions for CLI. Based on the slide, looks like $6 billion out of the $100 billion FUM is from data centers. Where could that get to if you do get to $200 billion FUM?

Let me touch on the divestments one first. I think last quarter and year-end, what we talked about is we are trying to get to at least $3 billion divestments for a total asset base. I think if you look at our balance sheet, we would like to achieve $1 billion worth of China assets divestments to help bring down. So obviously with the most recent one, we're at $200 odd million. We would hope to make more progress towards that over the course of the next few months. On the data center growth ambition, as you saw from the slide, and it is a very lovely slide in the back that shows our 27 data centers. It currently forms from a completed asset basis, it's about $6 billion out of $100 billion funds under management. We are intending over the next few years to hopefully we will see at least 1 or 2 more data center funds focused on India and potentially regionally as well. So we think the $6 billion can scale up, could -- potentially, if we look at the coming tiers, could get to $10 billion, $10-plus billion. But it is one of our focus areas. We are also pushing very hard behind living and lodging under Kevin's team and obviously logistics. So we are expecting all of the different pieces to contribute. So I mean data centers, as you can see it is scaled up nicely at $6 billion. Can we get this to double-digit? Yes, we are confident that over time we can, but it's only one of the growth engines that we look at.

We have time for 2 more questions. Guha?

Can I just ask in terms of your capital structure and its returns, what's more important? Is it a double-digit ROE or shrinking your capital and being moved out of the MSCI indices?

So -- well, we hope not to move out of any of the MSCI indices.

But if you continue to shrink...

So our expectation is between the 2 components of our business and the analyst please correct me if I'm wrong. But most folks will attribute a double-digit multi multiple on the earnings that we get from the fee management business, right? Just say we get 15x on the fee management business. For the real estate investment business, most folks measure us 2 ways. They measure us one on a price to book for what we have on balance sheet, and then for most of our listed funds, they measure us based on our target price or the market price of the listed. As we shift our exposure and we reduce our equity base, we expect that if we're able to grow the fee income business, our market capitalization should actually increase because the multiple we should get from that recurring income stream, which is much more valuable than the income we get from the real estate ownership business, will balance out. So our actual expectation is we should grow in weightage on the MSCI even as we reduce our equity base. And if we can reduce our equity base and improve our ROE, we expect the market will look at us more favorably.

Any final questions from anyone? Yes, Donald.

Donald from Bank of America. A couple of questions, a lot of focus on China, but I wanted to ask about divestments that non-China assets. You mentioned that you're prioritizing divestments and recycling. On the other hand, you also want to lighten China capital allocation in a specific market, no more than 20%. So is it the case that you need to, at this point in time, buy asset, buy things first before you can sell non-China assets. Because as we go along, gradually you'll start having enough non-China assets to divest already, right, going into the next 12 months. So I just wanted to see what's the view there on non-China? That's the first question. Second question is for Andrew. You mentioned on Australia, you're looking at credit and lodging and living as the sectors. Lodging and living, are you thinking about BTR or service apartment hotels? And if it's BTR, would the returns be adequate for you to be looking at, at this point?

Thanks, Donald. I'll maybe ask Kevin to share his views on lodging in Australia and then I'll take on the question around balance between, what I think you're referring to is FUM versus capital into the country, which is an important distinction to make. But perhaps Kevin can help.

I was actually expecting the question, why Chelsea? But okay, I'll talk about Australia. Australia, I think we've been investing, but more in the service apartments and co-living space. BTR, I think the numbers at this point in time probably still not stacking up as well as we would like it to. I think you look at the taxes, look at different states, you look at the construction cost, labor costs, some of these things have not abated as much as we want to. So I think that is a market there is demand, but we just need to make sure that we enter at the right time. But we do see quite good traction on the service apartment as well as co-living front, because I think Australia is still a very attractive market for travel, for corporate. It's got a strong domestic economy. We've got good brand presence in Quest, 200 properties across New Zealand, Australia. We have good distribution capabilities. So I think Australia is the place where we think we can play well in the service department and co-living space.

Thanks. I should also. I should have mentioned that self-storage is something we're looking at in Australia as well, which is a mandate under [ Pets ] fund. So to your question about what would we prioritize, I think the answer is that we will not -- we will prioritize capital recycling, because I think that's number one. It accomplishes a lot of the things that we talked about earlier today. So if in the short-term I sell out, I have to sell down, like we did with multifamily, this half, we will do so because it accomplishes, again more important objectives. And if it takes us a bit more time then to address the rebalance, then so be it. So the short answer is that. But there is a difference between funds under management and capital, right. So the capital is what Chee Koon is referring to. If you bring the capital down but you increase your FUM in China, I don't think that's a bad thing. In fact, we think that's with the right product with China for China, you are de-risking our business as a whole. So it's important to make that distinction. So if I've got more FUM but less capital employed, because previously I was all on balance sheet or my funds were 50% GP stake, now I've got very little balance sheet but bigger FUM, but my fund stakes are 5%, 10%, that's a good place to be in. FUM number bigger, headline China bigger, but capital exposure much lower. I would say overall risk and better diversification for CLI. So it's important, I think, to make that distinction between capital and funds under management, which is what we are all about.

Okay. We've come to the end of the session. Thank you all for joining. The next time we see you will be at our full year results, and we look forward to ending the year strong. Also would like to make an announcement on our Investor Day. This was unexpected. It will be on the 22nd of November and please await the invite soon. All right. Please join us for some tea break, and thank you all.