City Developments Limited (C09) Earnings Call Transcript & Summary

Okay. Good morning, ladies and gentlemen, friends from the media, analysts, investors, bankers and fellow CDL colleagues. My name is Belinda, and I'm the Head of Investor Relations and Corporate Communications at CDL. On behalf of the CDL management, we warmly welcome you to CDL's briefing on its unaudited financial results for the half year ended 30 of June 2021. It's has been quite an eventful year for all of us in Singapore. At the beginning of the year, we were able to host a hybrid briefing where we managed to meet many of you physically for our full year 2020 results in February. Now since then, COVID-19 restrictions have tightened, eased and tightened again during various phases, which I believe is very similar to many of our international guests joining us on this webcast this morning. The good news is that last week, Singapore articulated its road map to transit towards a COVID-19 resilient nation. And this bodes well for our economy, businesses and communities. I'm sure many of us are looking forward to the opportunity to interact more freely in the months to come. However, as a precautionary measure for this first half 2021 briefing, we have intentionally kept it as a virtual meet. Attending today, we have friends from the media and our sell-side analysts joining us on a Zoom webinar. And we also know that many of our bankers, investors, analysts, media and other stakeholders have joined us on live webcast, and we would like to take this opportunity to welcome all of you. This morning, before trading, the CDL Group uploaded several documents on SGX and our corporate website. They include, firstly, a copy of our financial statements; two, a press release summarizing the key highlights of our results; and thirdly, a first half 2021 presentation material. If you have not already done so, please feel free to download these documents, which are available on our website, cdl.com.sg. I would like to take this opportunity to introduce you to our CDL management panel. We have Mr. Kwek Leng Beng, our Executive Chairman; Mr. Sherman Kwek, our Group CEO; Mr. Chia Ngiang Hong, our Group General Manager; Mr. Kwek Eik Sheng, our Group's Chief Strategy Officer; Ms. Yiong Yim Ming, our Group Chief Financial Officer; Mr. Frank Khoo, our Group Chief Investment Officer. The format of today's briefing will be in 2 parts. Our Group CEO, Mr. Sherman Kwek, will be giving a short presentation of the key highlights of our announcement, followed by our Group CFO, Ms. Yiong Yim Ming, who will share the financials. Please note that there are other slides in our uploaded presentation deck, but in the interest of time, we will leave those for your reference. After the presentation, we will move to a Q&A opportunity with the panelists. Without further ado, I would like to invite Mr. Sherman Kwek, CDL Group's CEO, to kick start the presentation. Mr. Kwek, please?

Thank you, Belinda, and good morning, ladies and gentlemen. I will -- let me take control of the slides first. Okay. Great. Okay. Great. Okay. Good morning, ladies and gentlemen. I'm here to take you through our first half results. As Belinda mentioned earlier, I'll take you through the overview and strategic initiatives. Our CFO, Yim Ming will take you through the financial highlights, and we won't be going through the office review, but you can peruse it at your own leisure. There's a lot of information there, more detailed information on our operations. Going through the overview for our key financial highlights, while not the previous set of numbers, but I think one thing we can derive is that things are improving. On the revenue side, you can see that our revenue has gone up against the first half of last year. This is primarily, I think, driven by our property development segment, especially in Singapore. And this segment has performed very strongly. I think all of us know that the local market has performed extremely well. And in particular, I think 3 projects really helped to drive our revenue recognition. And those 3 projects were the Tapestry located in Tampines. This is a 861-unit development, and we're 100% sold. There's also Whistler Grand located on the West Coast. Out of 716 units, we are 99% sold, so we're left with 2 remaining units. And there's also Amber Park located in Tanjong Katong. Out of 592 units, we are 76% sold. So I think it's been a really great performance and good to see that the property development market is doing well. In fact, one of our other JV projects, Sengkang Grand, did very well as well. Out of 680 units, we are now 81% sold. But because it's a 50-50 JV with CapitaLand, it doesn't actually hit our revenue line. So moving on to the EBITDA side, you can -- I think EBITDA is a great reflection of our operational performance. It's a better indicator because it's not clouded by other so-called costs. And on the EBITDA side, you can also see that things are improving, and it's been resilient. While we're still not out of the woods yet, but certainly, it's been a positive trajectory. On the profit before tax side, you will see a bit of a dip. This is more because of things that we mentioned in our press release and also our commentary before. So things like we had higher net financing costs primarily because we didn't recognize -- we stopped recognizing any further interest income from our so-called loans to Sincere and the bonds that -- Sincere bonds that we subscribe to. Also, there was lower divestment gains. For the first half of last year, we had 2 bigger divestments. This was -- we divested a technology venture capital investment that we made called SHR and we also divested our Millennium Cincinnati Hotel in the U.S., and these 2 added together gave us about $52 million divestment gain, whereas this year, we're a little bit light on this. We only sold one piece of land in New Zealand, in Christchurch. And we do have several more divestments in the pipeline, but they haven't closed yet. So hopefully, we'll see those gains come in the next few months before the end of the year. And lastly, also, PBT was affected by exchange loss. We had an exchange loss of about $10 million this year, whereas the first half of last year, it was actually a $10 million exchange gain. So and lastly, coming down the PATMI, number looks quite unsightly, but this was also because last year was greatly boosted by a New Zealand government's business continuity package where they gave a deferred tax credit of around SGD 17.6 million. So we weren't able to enjoy that this year. So therefore, PATMI comes across in a very negative manner. But all in all, it's an improving situation. For our NAV per share, it took a slight dip. Once again, for the second time we've decided to show what would be our RNAV not only if you revalue our fair value of our investment properties, but we also revalue our hotel portfolio, and it's actually $17. So we know there's a big gap between RNAV and where our share price is. So we work hard on closing that gap. Last year, for the first half, obviously, it was during the midst of the most turbulent times when the pandemic hit us full blown. So therefore, we did not declare an interim dividend. But this year, we are proposing an interim special dividend of $0.03 a share. So we'd like to thank our shareholders for their support. In terms of key operational highlights for the first half of this year, we have sold 971 units with a total sales value of $1.7 billion. I would say this is a very, very good achievement. And as I mentioned earlier, the market has remained strong. Last year, the overall property market did about 10,000 units. So this year, I think we are expecting it should do similar or possibly even higher than that for the total market for new units. And in terms of boosting up our pipeline, we have been fortunate so far to have won 2 land tender sites. I'll go into a bit more detail later, but there's Northumberland site with about 407 units and Tengah Garden, which is an EC site there, which is about 628 units. So in total, slightly over 1,000 units added to our pipeline. In China, we sold 171 (sic) [ 179 ] units, total sales value of CNY 502 million. Australia, we also continue to sell. So we sold 96 resi units with sales value of around AUD 80 million. For asset management division, we are also so-called pleased with the resilient performance. As you can see, our occupancies there are all high for our Singapore office portfolio and retail portfolio higher than the national average. Later on, when Yim Ming presents the financials in detail, you will see that for investment properties segment, we showed a dip of about 10% of our revenue. But I think that's understandable. We had to give out rental rebates, which directly hit our top line. And it's been a tough, I think, journey for them. And we also had -- we mentioned in our profit warning as well as in our commentary that we have this very sizable mall in Phuket in Jungceylon, and that mall had to be closed, especially since the Phuket government had closed the city to foreign arrivals. So losing almost all of the revenue contribution from that mall was also are quite impactful on us. But overall, I think we maintained a very steady performance. Likewise, for our overseas office assets in London and China, occupancy has remained stable. Hotel operations, where I anticipate we will certainly get quite a few questions today. We -- while things are not fully recovered yet. But having said that, again, we see green shoots of recovery. You can see there for the metrics that are shown. For global occupancy, things have trended up and while not high by any standards, but at least the occupancy rates are improving. RevPAR is down. Primarily, this is driven because of the rate. So rates still remain quite depressed. But as we mentioned in our press release and our commentary as vaccination -- global vaccination rates accelerate, this should lead to opening of international travel and opening of more economies. And I will also talk about so-called some of the AEIs that we've done, including the M Social in New York, which launched in May and has done very well since then. For fund management, we will continue, I think, to build our pipeline and continue to drive our AUM. We supported IREIT, another listed REIT in Singapore. We supported the acquisition of 27 retail assets from Decathlon for EUR 110 million. And as many of you may have read, we are also making applications for proposed IPO and listing of our U.K. commercial assets on the SGX-listed REIT in Singapore. I can't -- I actually sought legal advice last night as to how much I can say about this. And I was told by the lawyers, you can't say anything at all. So there won't be any slide specifically dealing with this. And I don't think we can answer much questions on this today, but suffice to say that we are moving along the process. And also, I do want to clarify one thing. I think there have been a lot of media reports that I have mentioned that this listing will be in sterling pound denominated. That is not true. From day 1, our intention has been to list this REIT in Sing dollar, in SGD. So I just wanted to clarify this in case there was any confusion. This is a useful slide. I think that shows you our EBITDA, so-called broken down by segment. And you can see that hotels has still been a bit of a drag on our EBITDA, but it's improving compared to last year. And we expect this trend to only get better and also shows you a breakdown of our total assets. We are now at about $24.5 billion in terms of total assets. This just shows you total assets broken down by geography. So you can still see that Singapore still represents a good chunk of it. Now in terms of strategic initiatives, I think all of you are very familiar with our GET strategy, which we unveiled in 2018. And that's basically growth, which is building out development as well as some recurring income; enhancement, enhancing our existing portfolio to ensure that we get more out of it as well as driving operational efficiency; and transformation, which is transforming via strategic investments, via our fund management ambitions as well as doing a lot of internal innovation and various external venture capital investments. So for growth, we have launched Irwell Hill Residences this year. And we're really pleased, I think, with Irwell's performance. Irwell has 540 units in total. And right now, I'm pleased to report that we have sold 64% of the project. We will be launching CanningHill Piers in the last quarter of this year. That's the JV project with CapitaLand. It's the former Liang Court Somerset and Novotel Clarke Quay hotel sites. So we amalgamated together. We're doing a really nice mixed-use. We will have close to about 700 units of residential for sale. I talked about the 2 replenishments earlier, enhancement. I'll take you through in more detail later, what we're doing, but we're enhancing 4 of our assets. We are also redeveloping Fuji Xerox Towers and Central Mall. Again, I'll talk more about it later. And there are some hotel refurbishments, renovations and repositionings that we've done. And lastly, via transformation. There's an ongoing strategic review of M&C's portfolio, Millennium & Copthorne Hotels, as well as, obviously, what I mentioned earlier, the application for an IPO and REIT listing. So in terms of growth, you will see that right now, we have a good stable launch pipeline of about 2,000 units. Just to recap, our group typically tends to sell around about 1,000 units a year. So this launch pipeline is great for us, but it also highlights that we will need to continue replenishing our land bank. And we're very excited about these projects. And besides CanningHill Piers, which will hit in the last quarter. The rest will come to -- will be sales-launched next year. As I mentioned earlier, this is our JV project with CapitaLand. It's a fantastic project. Anyone that's ever seen the views in -- when they've ever been to stay at, let's say, Somerset or Novotel, when those buildings were around, would have seen how magnificent the views were. We have a dual frontage facing the river, facing Clarke Quay as well as facing Fort Canning Park. Gorgeous views in all directions. The redeveloped scheme will have 4 towers. So there will be 2 towers of residential, one tall one at 180 meters and one shorter at 100, and we will have a service residence that Somerset will be owning and operating as well as we will have a Moxy Hotel that will be owned by our CDL Hospitality Trust. We replenished 2 sites. One of them is Northumberland Road. It's a beautiful site, and it's near Farrer Park or direct access to Farrer Park MRT via an underpass from the site itself. And you can see from the picture that we put up there, that's the view to the south. So you can see that it's all mainly low rise and also quite a lot of conserved shop houses. So it's going to be a really nice view when this development is done. Sorry, a bit of a lag in the slides. Okay. And the other site was Tengah Gardens. Tengah Gardens, as you know, is slated by the government to be the first smart city in Singapore. The government is really putting in a lot of innovative measures to ensure that it's very energy-efficient and it's a real very smart and AI-driven city. And we are very fortunate to have won the first EC site in this whole new master plan, and we won it by the narrows of margins at 0.03%. So this is something we're very, very pleased with. And looking at the strength of the EC market so far, we're quite confident that this site will do well when we launch it next year. In terms of enhancement, I think enhancement primarily consists of these 3 parts, right? One is doing AEI, so renovations and refurbishments to really rejuvenate our existing assets, especially the aging ones and to unlock value. The other is for redevelopment. So obviously, we have 2 projects ongoing that we're looking to redevelop. And the third is driving operational efficiency through so-called synergies within the group. And also we've been working hard to inculcate the CDL culture, I think, for innovation, teamwork execution and customer focus for the last 4 years already. So -- and we're seeing a lot of fruit with this. I'll touch briefly on our CSR and ESG achievements. I think we're really glad to continue to uphold our leadership in this area and to make big strides. We were one of the first real estate conglomerate in Southeast Asia to sign the Net Zero Carbon Buildings Commitment. We have secured a 5-year $1.2 billion Green Loan for South Beach Consortium. And we are certainly accelerating our renewable energy deployment, and we have raised the bar, I think, for prompt and transparent ESG reporting. And some of you may have attended or at least the webcast for our event earlier this year, which was Change the Present, Save the Future exhibition at our CDL Green Gallery at Botanic Gardens, and this was jointly organized with NParks, and really emphasizes the urgency at which we had to combat climate change. This also gives you a bit of a snapshot about our track record in terms of green bonds and loans throughout the last few years. So now we have achieved more than $2.5 billion of sustainable financing, and we anticipate this figure will go up further. So for 2 new sites, for instance, we are looking to secure green loans for those sites. So this number should go up quite quickly. At the same time, we also want to say that we're really happy that we have a -- in 2019, we've got a $250 million SDG innovation loan. So SDG's sustainable development goals launched by the UN. And this loan basically says that if you can produce innovations and get it certified and verified by an independent panel, you qualify for an interest rate discount. And with one of our newer innovations, which is a smart enterprise platform that centralizes building management, we were able to qualify for a discount for this loan. This slide just shows you our achievements and ESG milestones throughout the year. And just very recently, obviously, we are also very pleased that when the Singapore Governance and Transparency Index for this year was announced, we were ranked fourth out of 519 companies. Now on to the AEIs. I won't dwell much on this, but this is just to give you an idea of what we're doing. So Palais Renaissance. I think all of you know this has been in our portfolio for a very long time and has aged quite tremendously. So we decided it's time to give it a real refresh, and we are creating alfresco dining on the frontage of Palais as well as really revamping all the common areas as well as the office side as well. There's attached office for Palais, sort of revamping the office lift lobbies as well as the podium. And we also, of course, are putting in a lot of nice touches to make it such as this Instagram-worthy feature wall at the basement. So it will be really nice once this is completed. And we are also putting in an escalator to the basement. Previously, it was only a staircase, a very steep staircase, or you had to take the lift, which wasn't so convenient for our visitors. So we're putting in an escalator there. We're also revamping one of our office buildings, King's Centre, which is located next to our Grand Copthorne Waterfront Hotel. Again, this building has aged quite considerably. So we're giving it a nice facelift all into the main lobby to all the lift lobbies and to the basement. And this will really look good, and we're also upgrading the air conditioning system for energy efficiency. One of our -- some of you have been at Tower Club, would have dined at our Chinese restaurant there, Ba Xian. We have renovated the Straits Bar, which is on the top floor of Tower Club. So -- and it has received a lot of positive feedback and good patronage. So at the same time, we decided it's time for a refresh of the Chinese restaurant. And you may remember, those who have been there, that there's a void space in the middle of the Chinese restaurant that overlooks the main Tower Club lobby when you come in. We are sliding over the void space in order to create one single contiguous space for the Chinese restaurant. So this will enable it to be able to hold private events and banquets and functions in the future. And obviously, we are doing up all the private rooms plus reconfiguring the layouts, adding restrooms. So this will look really nice and hopefully enhance our revenue and income when it's done. And lastly, we actually have a big AEI plan for our mall, Jungceylon Phuket. This mall was opened in April '07. So it's already been 14 years, and it does need a facelift urgently. But I think because of COVID, we -- and also because Phuket is reopening, may take some time to get back to full capacity. So we are, I think, going to phase this out first. So rather than do one huge AEI, we are just going to do some functional upgrades and much needed repair work to our mall, which traditionally has been a very big contributor to our rental revenue. And lastly, for enhancement, just 2 hotel assets that I think we are proud to have revamped and relaunched. One is this M Social New York in Times Square. And if the first month is any indication, the hotel has been very well received and has really done well with high occupancies. So hopefully, this hotel will continue to be the buzz in New York and get a lot of patronage. The other is M Social in Paris. This hotel also is old. And therefore, we really needed to revamp the rooms at the hotel. The hotel will be reopening and relaunching next month as the M Social Paris Opera, and we also believe the hotel will do well because of its really great location and very, very accessible. In terms of so-called redevelopments, so leaving AEI, it's now in terms of redevelopments. These are the 2 schemes that we have ongoing. One is Fuji Xerox Towers. Happy to announce that we have received a provisional permission, PP, in May 2021. We do have -- because we went under the CBD incentive scheme, we do have a GFA uplift of 25% to approximately 655,000. And we have actually shown this earlier as to how we are splitting up the nesting. So we're doing 35% residential, about 256 units; 25% will be serviced apartments for rent; and about 40% will be predominantly office. And we have already vacated all the tenants as of 1st July, and we're going to -- we are decommissioning the building right now, and we'll be starting demolition soon. So this is underway, and it's a very, very exciting and sizable mixed-use project that's located right in the heart of the -- right at the gateway of the Greater Southern Waterfront master plan that the government has. The other, I can't speak too much about it for now because we're still going through the process, but it's Central Mall. In the rendering that you see there, there are 2 buildings. The one on the northern side is this Central Square that's owned by Far East Hospitality Trust. The one on the southern side is our Central Mall site. So we will be redeveloping the site, and we -- this is a joint application between us and Far East Hospitality Trust. So we're redeveloping the whole site. And once it's done, we will -- we should be see a significant uplift in GFA once we secure authority's approval for it. So this is a very, very exciting development as well. We can't wait to unveil more details when we have it. Now on to the transformation. The key pillar of transformation for us has been our fund management ambitions. While we're still small by any measure, but we're growing, and we're on track to reach our targeted AUM of USD 5 billion by 2023. This slide just shows you that there are 2 ways for us to achieve our fund management ambitions. One is via organic growth, meaning that we use existing assets that we have acquired on our balance sheet to so-called drive be it a new private equity fund or be it a listed REIT. So an example is obviously what we're trying to do by listing our U.K. commercial assets in Singapore in a REIT format. So this is kind of an example of organic growth. And we have also been accumulating assets in Japan and U.K. for the private rented sector. PRS is basically apartments for rent. And this also could be another good seed for future via the private fund or a public sort of REIT. The other way is through M&A, and one of the prime examples of how we've done the M&A is by acquiring into IREIT. We have taken a 50% stake in the management of IREIT. So we jointly manage it together with our partner Tikehau. And the next slide shows you, actually, IREIT's performance since we have participated and become a joint manager of the REIT. We have, of course, also accumulated units in the REIT. There are a total -- we now own 21% of the REIT units itself. And we're happy to show that the REIT has done 2 very successful equity fundraising exercises, one last year and one this year. And through the acquisitions that we supported, including the earlier one I mentioned about buying assets from Decathlon, we have driven a 71% growth in the AUM of the REIT. So we're really happy with what we've done here. And as I mentioned earlier, I would have loved to include another slide on our so-called U.K. assets to be listed in Singapore. But since we're in the IPO process, we cannot make any comments about this. So this ends my segment of it. And I would like to hand this over now to Yim Ming, who will continue with the financial highlights. Thank you.

Thank you, Sherman. Good morning, ladies and gentlemen, I will go through our results by core segments. In terms of property development, for revenue, this segment performed well. Sherman has mentioned earlier, revenue is up 35.5% to $628 million. Singapore is the largest contributor, contributing 74% of this segment revenue. Projects, of course, earlier mentioned, Amber, Whistler Grand and Tapestry. These are the big contributors. China contribution included Shenzhen, which the group completed its acquisition in February 2021, as well as the Shanghai Villas, which we are selling progressively. Of course, the other contributor is our property arm in New Zealand. For the segment revenue, profit before tax remained stable at $119 million versus $115 million for the first half of 2020. This profit is boosted by Shenzhen negative goodwill of about $36 million. Upon the completion of the acquisition in February 2021, the group had to fair value the net assets of Shenzhen. This process included engaging external valuers to value the project as well as the auditors to audit the completion balance sheet. So actually, excluding this negative goodwill, this segment is actually reporting a lower PBT. And it's largely due to 3 reasons: higher financing costs, expense for the new projects; tender profit margins for the projects as the 3 projects are all GLS land tenders won in recent years; and of course, more importantly, slower recognition of profits because the construction progress is hampered by the pandemic. Next, let us move on to the hotel segment. Hotel segment revenue is down 10.8% to $317 million. Singapore contributed a stable 20% to revenue for this segment for both periods. So if you look at geographical, Asia is the biggest contributor, at 46%; and U.K., 13%; and so, U.S.; 25%. Global RevPAR has declined by 10%. But if we compare Q2 2021 performance against Q2 2020, it shows green shoots of recovery. In fact, for the month of June 2021, all regions were able to record positive GOP. We expect this segment to bounce back strongly by end 2021 or 2022 as border restrictions start to ease. PBT and EBITDA has also improved for this segment, even though it's a smaller loss position. There were divestment gains as well as impairment losses made in both of the years. So actually, if I strip away the divestment gains and impairment losses to compare like-for-like, the hotel segment has actually improved its PBT by 21%, despite an 11% decline in revenue. That's really the concerted efforts of cost containment as well as streamlining. For investment properties, this segment reported lower revenue and correspondingly lower PBT, particularly, as Sherman has mentioned, Jungceylon. So with the AEI initiatives that he has also shared for this asset, we do believe that we are well positioned to capitalize on the growth recovery once the situation normalizes. So as a quantum-wise contributor, a decline about $12 million in revenue for the 2 periods under review. So for this segment, we also don't forget that our hospitality trust, CDLHT hotels that's on master lease are also recorded as investment properties. So with the disposal of Novotel Brisbane and Novotel Clarke Quay, they also caused a decline in this segment. For others, this is miscellaneous segment of the group. Revenues increased due to our facilities management arm, CBM. So this decline in PBT, as you see right here, is actually from $81 million in first half of 2020 to $24 million in first half of 2021, and this is because of the interest income of about $34 million relating to Sincere USD bonds as well as the CNY 2.75 billion loan that we earlier advanced as well as divestment gain. So for this segment, if I were to exclude the interest income and divestment gain, actually, this segment will have recorded an increase in PBT in line with the increase in revenue. So allow me to just also address Sincere as well. I just want to reiterate that further to our substantial impairment losses for Sincere that we made in FY 2020, net exposure to Sincere stands at $117 million as at 30th of June 2021. For first half of 2021, we had recognized a $4.2 million of interest receivable from Sincere based on effective interest rate in life accounting standards. It's something that I have to do, right? And accordingly, what we have done is we have fully impaired such interest receivables. Hence, this set of results that you see for first half of 2021 did not include any financial effects as a result of Sincere. Our cost of investment in Sincere has been fully impaired. And hence, there's no further downside on the need to equity for the losses of Sincere. So once again, we just want to reiterate our position that we have ring-fenced our current exposure to Sincere. We will continually, strenuously protect our position. And we have no intention to further support our financial obligations of Sincere. We'll monitor the situation closely, and we'll embark on the appropriate actions. Next slide, please. On the charts, revenue for first half of -- for the first half, if you look at first half of 2019, actually, revenue for property development was actually even lower than first half of 2021. This is really largely a result of timing, as that was when we started acquiring the assets and they haven't started launching a revenue recognition there. If you look at the 2 segments, hotel properties and investment properties, I think we must not forget that first half of 2020 was still a fairly normalized quarter, whereas the first half of 2021 took into account the full impact of the pandemic. So you could see the trending down between 2020 and 2021 for both the hotel as well as the IP segment. So as a reference point, if I look at first half of 2021, the revenue is not even -- it's only about 40% of first half of 2019 revenue. So I think there's huge growth we have in this segment. Next slide, please. EBITDA, as Sherman said, we focus very strongly on EBITDA generation. So first half of 2021 had stronger EBITDA, $272 million. So M&C, albeit you can see right here that although it's not generating positive EBITDA, yes, as at June, it has gone GOP-positive and it has also improved its position substantially. So the group is actually targeting for the hotels to be EBITDA-positive in the near term. Next slide, please. For PBT, don't be overly alarmed. The first half 2019 is boosted. You see this long gray bar on the left-hand side, it's actually boosted by PPS gains. There was about $204 million in 2019. So excluding these PPS gains, actually, this segment will actually be only about 54% for IP. So all segments, as you can see, for first half 2021 are profitable except for hotel segment, but you can see a much reduced loss position. So please also remember the group adopts a very conservative accounting policy of depreciating our assets. So depreciation for first half of 2021 is about $144 million. So we do hope this is a bottoming out sign, and we're definitely looking at positive upside. Next slide, please. Balance sheet. In terms of balance sheet, the group really continues to demonstrate its very strong balance sheet and liquidity position. As at 30 of June, we still have a very strong cash balance of $2.8 billion. And of course, our war chest in terms of cash and available credit facilities of $4.4 billion. On this note, I think we are very, very thankful for all the banks who have stood by us through good and bad times. Gearing is at 65%. These are targeted upper ceiling. So the group is looking at various initiatives to try to bring that down. Average borrowing cost is fairly low, still kept consistent, 1.7%. So overall picture-wise, I think the group is very confident to weather this storm with our strong fundamentals and financial strength. Next slide, please. Capital management. So in terms of capital management, we really want to exercise a lot of discipline. And essentially, in terms of expiry profile and currency, we have no speculative activities and it's quite a balanced debt portfolio and debt currency mix that really evolves with our geographical concentration. This is actually my last slide. The rest of the slides will not be presented. I'll hand it over back to Bel.

Thank you very much, Sherman and Yim Ming, for the presentation. We would like to move on to the second part of today's briefing, which is the Q&A.

[Operator Instructions] So I would like to kick off the first question, and I'd like to invite Derek Tan of DBS to post your question. Derek, please.

Belinda, can you hear me?

Yes, I can. Thanks, Derek.

I just got 2 questions. My first question is on the Sing resi market. So I've noticed that CDL have been bidding for land, but largely through a JV with MCL. Just wondering if we could get some color on your thoughts on the Sing resi market. And are you taking a more cautious approach towards new land bids? Then my second question is on the forward bookings for hospitality. Could you give us some color on how things are looking like. I've been hearing about how hospitality players are also seeing some form of labor shortages, i.e., there could be some impact in terms of margin. So if you can provide some input on that for second half of this year would be very helpful.

Okay. Derek, I will take the first question and then turn the second question over to our Chairman and Eik Sheng for more insights into the hotel side. Yes, I mean, we traditionally actually always had a culture, I think, of doing JVs, if you look back, right? I mean we've JV-ed with various Hong Leong Group companies, with Mitsui Fudosan, local tenders. I think we've been wanting the joint venture together with MCL Land, which is a wholly owned subsidiary of Hongkong Land, whom we know the senior management and the shareholders very well. And we've been wanting to do a JV with them for quite long. In fact, we've bidded with them for other sites, even last year as well. So great that we're able to, out of the gate, have 2 JVs with them. And so far, it's been a really great working relationship. You also can see that we do JVs with CapitaLand as well for Sengkang mixed-use development as well as for this Clarke Quay. So I wouldn't see this JV as the fact that we're very, very cautious or worried about the land market. Yes, so-called land prices have remained very high. And obviously with most developers are keen to replenish, land bank has still been a very fierce competition whenever we go out and participate in government land sales, GLS tenders. But essentially, I think it's a part of our normal course of doing business is to form JVs as well. Now having said that, as you can see also, when Yim Ming presented earlier, right, I mean, our gearing has reach on an IP fair value basis, our gearing has now reached 65%. And we don't really want to see our gearing increase that much more. So I think part of us doing JVs is also to ensure that we allow time for our capital recycling initiatives to take shape. We're really going to try to accelerate our capital recycling initiatives so that we free up more cash for new acquisitions so that we bring our gearing down to lower levels, to optimal levels. So I think that's part of the reason. So okay. On this point, I hope I addressed your question, Derek. I'll pass it over to either Eik Sheng or our Chairman. Maybe Eik Sheng can start off first.

Yes. Thanks, Sherman. I'll take the question on the hospitality side. I would say that on the U.S. and the U.K. region, I think that's really where we're seeing a lot positive recovery to your question about the opening of the markets. I think in terms of forward bookings, we have also seen very encouraging signs, especially for July. So yes, I think in terms of forward bookings, we are cautiously optimistic on this recovery trajectory. In terms of the manpower, I think that is a valid concern in certain regions. In New Zealand, management team has also highlighted this in their report to the market. As the recovery happens, of course, there's going to be an increase of the manpower required. So I think we are trying to mitigate to some extent. We're trying to be more efficient. It doesn't mean that if numbers go back to the way they were in the past, we restore the manpower all the way back as well. We're doing some digitalization. We're doing some innovations to try to reduce that reliance on the manpower. So I think that we're trying to address this segment as well.

Okay, Derek. I trust that, that answers your questions. Thanks, Derek. Maybe we move on to the next question. I'd like to invite Mervin Song of JPMorgan. Mervin, if you would like to pose your question.

I just want to follow up on Derek's question in terms of the forward booking outlook. I'm just wondering whether you could help us quantify the improvement in RevPAR that you're seeing would be double digit and how much positive EBITDA could be in the second half. Second question, in terms of acceleration of asset recycling. Is that coming mainly from the hotel side of things or we're looking to sell other investment properties? I think there were some press reports of CDL looking to sell the Seoul Hotel for up to $1 billion. I'm wondering if you can make any comments on this.

Sure. I'll try to answer that question first, and additionally, the Chairman can in well. I think on the -- to try to quantify, I think it's a bit challenging because, honestly, every region is very different. I think in our Q2 numbers, you can take a look, we have attached it in the report. RevPAR is almost more than doubled for the second quarter, overall. Whether that continues in Q3, I think, of course, the -- we expect the rate of increase to be consistent to -- towards the end of the year. I think generally, we track against the 2019 numbers. Right? I mean 2019 being the pre-pandemic kind of results. So I think right now, I would say, roughly, we're around halfway to where it used to be, let's say, for the month of June. And we are hopeful that as we get to the end of the year, this will track towards -- back to 100%. But I think that, that rate of growth is -- we have to be a bit cautious on the RevPAR recovery. I think on the asset recovery recycling, it's not just on the hospitality side. I would say it's a complete strategy for the entire group. We want to be more active on the capital recycling. And I mean, hospitality assets, of course, is one area of the group. Things like even the U.K. REIT that we have mentioned earlier, that is also part of the process as well. I think I'm not able to comment too much on the Seoul Hilton. There's been a lot of media reports and we often get reverse inquiries into this particular asset, even for the last 8 to 10 years. So I would say that there's a lot of speculation, but I think until there's something firm, I will announce it in due course.

Yes, I concur. I don't want much to add to what Eik Sheng said. And he's absolutely right. I mean our divestment plans cut across our swath of our business. So it's not just hospitality assets, although, yes, there are certainly quite a number of hotels that have been slated for divestment, but we also have a land bank throughout the group as well as we have existing assets that we can monetize that on our balance sheet. So as Eik Sheng mentioned, the REIT is one way where we monetize our U.K. office assets. So it is something that we hope to really try to accelerate in the future in order to, I think, free up more capital for us to redeploy as well as bring down our gearing.

Thanks, Mervin. I'd like to move on to the next question. I'd like to invite Derrick Heng of Macquarie. Derrick, if you'd like to pose your questions, please?

Three questions from me. First is on land bank replenishment. Mass market seems to be quite a crowded street with the reopening of international borders and all. Do you think it's time for us to grow the prime residential land bank in a future land bid? That's the first one. Second is on Sincere itself. Can we just be very clear that the ongoing bankruptcy falling against this year, there is -- we are confident that there's no recourse to CDL in any way. And the third one is on your outlook for hospitality. You mentioned that you are quite confident of improvements from hereon. Should we be thinking about potentially even breakeven at the PBT level for hotels in the second half? These are the 3 questions.

Okay. Thanks, Derrick. I will address the first 2 and then again, hand it over to Eik Sheng for the hospitality side. In terms of land bank, yes, we have seen strength also in the high end, a lot of -- even during lockdown, a lot of foreigners, wealthy foreigners were still buying luxury properties in Singapore. And the volumes have gone up, prices have actually inched up as well. But having said that, as you know, it's not easy to buy so-called high-end luxury land for development in Singapore. Most of the land parts of District 9 and 10 are already sold. So there are -- the possibilities would be e bloc. And we have actively been looking at en bloc as well, so-called -- so we actually participated in this Maxwell House en bloc tender, but we didn't win. It was won by Eng Seng Land. And we will also look -- watch closely en bloc market to see if any suitable option has come up. And as I mentioned earlier, right, I think one of the things that we do for the enhancement side, right, especially for redevelopment is to give us a pipeline of luxury properties that we can sell, right? So in the future, I think Fuji Xerox Towers will be redeveloped into big integrated mixed-use development. I mean that will have a really nice property. Same thing, I think, with so-called other developments that we have. And also right now, in Q4 this year, we're going to launch this Clarke Quay integrated development with CapitaLand. So I would say that, that should qualify as a pretty high-end or luxury as well because that's in a very prime location, next to the best entertainment and leisure district in Singapore. So yes, we will find ways, I think, to increase our exposure. And we do see that luxury has so far remained strong. I mean another indicator is if you look at the GCB market, although we don't really play in that market. But if you look at the GCB market, I mean, that has gone from strength to strength over the last 2 years despite the pandemic, despite so-called no viewings. I mean, GC transactions have gone up to record volumes and record prices. So all in all, you are right, Derrick. I mean high-end has been strong. For Sincere, right now, I mean, they're still going through this so-called -- this bankruptcy, restructuring claim process. There was a court meeting yesterday, and we should hopefully hear a judgment within the next week or so. Right now, from what we can see, we don't see that we have any more legal or financial obligations to this investment, and we will continue to monitor the situation. I mean as we mentioned in our announcement, we endeavor to be a so-called -- as an equityholder and as a debtor as well as a creditor as well. We will endeavor to strengthen and protect our position. So okay, in terms of the hotels, maybe I'll hand it over to Eik Sheng, first.

Sure. Thanks, Sherman. Yes. So I think we have been very focused on the cash burn. So particularly, that's why we been more focused about the EBITDA. And I think what Yim Ming mentioned earlier is that on the third quarter and fourth quarter, we definitely expect the hotels to be EBITDA-positive. Yes.

Derrick, on the PBT level, it will be a bit challenging, considering our depreciation for our hotels is almost $90 million to $100 million a year, thereabouts. So really on a PBT level, I would say that it's challenging. But I think on the EBITDA level is what we really want to address. Yes.

Thanks, Derrick. I'd just like to move on to Brandon Lee of Citi. Brandon, if you would like to pose your question, please.

Yes. Just 3 questions. First one is what's the expected conclusion for the strategic review of M&C? It's already been, I think, close to a year or so. And obviously, this plan for asset divestment is still ongoing. That's my first one. And the second question is, do you have a rough estimate in terms of value of your build-to-rent portfolio? I think obviously, your REIT has expanded its mandate. And are there plans to actually go into JVs with them on student accommodation and build-to-rent? That's my second question. The third question is, can you speak for us the EBITDA among the various regions for hospitality?

I will let Eik Sheng, maybe you want to deal with the first question on strategic review of M&C, also PRS portfolio as well as CDL Hospitality Trust, their recent announcement that they're expanding their mandate and scope. Or maybe I'll let Frank deal with that after you -- you're taking it?

Yes. Thanks, Brandon. I -- we did this review, and you're right, has been ongoing. And ever since we privatized M&C, I think the intent, of course, is to capitalize on the portfolio. And of course, we were hit with COVID, the whole pandemic issue. So I would say the review is 2 parts, right? One is what can we do internally. And I think we have used the crisis to kind of accelerate to those plans. Really, we have -- in the meantime, we've been pushing on efficiency and cost controls and all that. We've really reduced a lot of the regional and HQ functions to become more decentralized. So yes, I think that, that's part of the review in terms of the operations for M&C itself. In terms of the portfolio, which I think probably your question is more related to that. It is an ongoing process. And you're right. I think some of it, we have announced a couple of the hotels which have been earmarked for divestment. I think Penang is one of them. And of course, Birmingham is already scheduled to complete sometime this month. But there are a few others. Unfortunately, we are not here to announce them until we have more certainty on those deals. But rest assured, we are reviewing the portfolio to see where is the best use, and I think we don't want to rush into this. We're not a distressed seller. We want to make sure that the best use of the site is something we want to do internally? Or do we get the best value out of selling it to a partner? Or do we want a joint venture with a partner? So I appreciate that it's -- yes, it's -- we may not be seeing much, much things being announced, but rest assure we are looking into it. Yes.

So Sherman, I will take the PRS question. Brandon, I think on the PRS question, if you look at our existing portfolio, we have 5 sites in Japan: 4 in Osaka and 1 in Yokohama. In terms of AUM, that's about SGD 100 million. We also have a development site in Leeds. We've told you, about 665 units once it's completed. I think the completion value would be about SGD 300 million. So in total, our PRS portfolio is about SGD 400 million, right? I think with CDLHT now thinking about going into that space, we think that there's a lot of synergy. A, it allows us to maybe look at a portfolio that's slightly bigger portfolio, which might include development sites and completed PRS because CDLHT can take the completed PRS, or completed or stabilized, and we can then take the developed ones. I think the other area of synergy is, obviously, as we develop, look, and we can recycle capital to CDLHT. The third thing is like what I mentioned that we are not here just to build AUM. We are also trying to build the operating expertise. And so as CDLHT acquires assets, and we are also thinking about how we can manage these assets for them. So all in all, I think it's a positive move within the group.

I'll just add on with the last part on the EBITDA breakdown. So in terms of the EBITDA breakdown-wise, I mean, really, I would not look at central cost. I would just look at region-wise on the GOP level. all regions, for example, Singapore, rest of Asia, actually, especially in New Zealand, are EBITDA-positive. They're doing very, very well. In fact, even regional U.S. is also EBITDA-positive. So actually, the bleed really very much is in New York hotels, which I think Sherman shared earlier on initiatives. So in terms of breakdown-wise, I would think that between Asia and New Zealand, they are the biggest contributor for EBITDA contribution for the first half. So of course, I think going forward to second half, I mean, we do hope to see all regions positive, but contribution-wise, will still likely be geared towards Asia and ANZ.

Thank you, Brandon. I'd like to move on to the next question. If I could invite Yew Kiang from CLSA. Yew Kiang, if you could pose your question, please.

Can you hear me?

Yes, we can.

I have a few questions. First one is on what are your thoughts on what your competitors are doing in terms of merging into real estate investment management platforms. Obviously, residential in this market, [ and time and age ], has a lot of pressure from government restrictions and policies. What's your thought about that? Secondly is on the International Plaza en bloc. Do you think that's something interesting that a group would look to do? The last one is on Sincere. If Beijing Yi He Mercury wins the case, what is the likely outcome? Will there be some form of asset sale required? Or what kind -- what should we expect? Yes?

Okay. Okay. I will take your question. The first one is interesting, Yew Kiang, your question about so-called given what other developers are doing. And it's actually interesting in the sense that I was looking through the Q&A, and Faris from Bloomberg has asked a similar question as well, talking about the thinning margins in the development business in Singapore as well as fund management, and all that. I mean I think it's not a one-size-fits-all. All of us developers are different in our genetic makeup. And obviously, our AUM is still quite small. I mean we have only really recently started since 3-over years ago embarking into fund management. So it's a very different scale, I think, from what they have. We are looking at ways, I mean, to -- how we can accelerate, I think, our GET strategy to ensure that we really maximize the shareholder value. But for the near term, I mean, I don't see us doing something, let's say, to the kind of -- to the same extent of scale as what CapitaLand is doing. I think that they're doing a great move to split their fund management business and consolidate it as well as privatize the development business. But I think we have our own priorities. And as I mentioned earlier, our business model and genetic makeup is quite different. We are expanding overseas. We are going to areas, as mentioned earlier, like private rented sector as well as other parts of the living so-called segment, things like retirement living. We have retirement living housing projects in Australia. I mean we look at workers' dormitories, student accommodation. So I think we're doing a mixture of different stuff. But essentially, I mean, yes, I think we're all looking to maximize value. And we certainly need to give more time, I think, for our AUM to grow for our fund management business. Once the REIT is successfully listed, if and when it's successfully listed, I think that will give us a big boost to our fund management ambitions. I also thought I'll just take the question on so-called International Plaza. I mean that is certainly also a very prime location situated around the Tanjong Pagar area, which has gone through a real regentrification and rejuvenation. We will certainly take a close look at that en bloc. But at the end, it still comes down to price. I think we will not pay a silly price for an asset, right? I mean for an acquisition. I mean we really have to be disciplined when we tender for land in Singapore, be it whether through government land sales or through private en bloc means. Lastly, for Sincere, you asked what would happen if this Beijing Mercury's claim goes through. Well, I mean, if the court deems to allow this to go into so-called a bankruptcy situation, then usually, it tends to have 2 outcomes. One is a restructuring outcome, where they form a creditor's committee and they sit down and they go through all the debt with the creditors to potentially take haircuts and to get the debt in order, in order to see whether they can give the company a new lease of life. The other is liquidation would be, obviously, which would be the harshest scenario, which is to, instantly, liquidate all the assets and then pay off the -- first, the creditors and then the equity shareholders in the order. I mean the secured creditors, unsecured creditors and equity shareholders. So these are the 2 potential scenarios if that claim is allowed to go ahead. Thank you.

Thank you, Yew Kiang. I want to move to the next person, which will be Tan Xuan from Goldman Sachs. Xuan, if you could ask your questions, please.

Sure. I have 2 questions. Firstly is on the Sincere exposure of $117 million on the book. Where is that currently tucked under? And if they do go into bankruptcy, should we see impairment of this? Second question is on Fuji Xerox. Can we get some sense of time line, CapEx and also ROI of the redevelopment? And lastly is on divestment of M&C assets. What would you say is the key hurdle at this point?

Okay. Addressing your first question on the Sincere thing. I mean, right now, as we have stated, our maximum exposure is this $117 million. And that's our remaining exposure since we've written it off, most of it last year. So if it really does go into a so-called bankruptcy situation, it also depends, right, whether it's a restructuring or liquidation. And from there, whichever scenario goes into, it also depends how much cash there is left over to pay off the debt or be it the debt or the equity. So we won't know whether we have to write off the remaining $117 million. But suffice to say that, I mean, the exposure is limited in that sense. And then, Tan Xuan, can you refresh my memory again. What else did you ask?

Second question is on Fuji Xerox redevelopment. Can we get some sense of time line, yes, CapEx...