Good morning, everyone. Welcome to CapitaLand Investment's financial results briefing for first half 2022. I'm Grace Chen, Head of Investor Relations for CapitaLand Investment or CLI. Before we know it, we are more than halfway through the year, and in just a moment, we will invite our Group CEO, Mr. Lee Chee Koon, and Group CFO, Mr. Andrew Lim, to share with you how we have done for the year so far. Our CEOs overseeing CLI's various key businesses are also here to answer your questions. Today, we are very happy to be joined here at our broadcast venue at Capital Tower by analysts from various research houses, as well as members of the media. They will be asking questions during the Q&A later.
If you are watching this broadcast, you are also very welcome to send in your questions by typing in the Q&A box at the bottom of your screens. Without further ado, I would like to introduce the members of our panel today. First and foremost, we have Mr. Lee Chee Koon, CLI's Group CEO. Beside Chee Koon is Mr. Andrew Lim, CLI's Group CFO. Next, we have Mr. Jonathan Yap, CEO of CLI's Listed Funds. Mr. Kevin Goh, CEO of Lodging and The Ascott Limited. Moving on to my left, we have the heads of our real assets teams. Mr. Simon Treacy, CEO of Private Equity Real Estate, as well as Mr. Patrick Boocock, our CEO of Private Equity Alternative Assets. Bring us first-hand news from China, a very core market to us, we have Mr.
Puah Tze Shyang, CEO of China, joining us virtually from Shanghai. I would now like to invite Mr. Lee Chee Koon to address us.
Hi. Morning, everyone. Nice to see so many of you in person. At least I don't have to speak into the camera, again. I mean, in the last two years, many of the briefings, you know, we're just talking directly into the camera. I think the darkest days of COVID-19 that affected many of us in the corporate world and personal life should be behind us. Actually, we all quite hopeful when the year started, you know, when the global economy started to open up, countries started to lift restrictions, and we actually see the incomes and the portfolio actually performing quite well across the various asset classes and markets.
Well, you know, shortly into the early parts of the year, we started to see things getting a little bit jittery, first with the Russian-Ukrainian conflict, and then the Fed and the various central banks around the world started to, you know, lift interest rates, I think faster than many of the economists had predicted or were prepared at least towards the end of last year. Of course, the other thing that threw a spanner in the works was, you know, China implementing a strict zero-COVID policy, especially in Shanghai, which led to a major lockdown. That's the backdrop, you know, that we were dealing with in the first half of the year. I mean, despite that, you know, I think we produced a credible set of results.
Operating PATMI has strengthened, and that's largely due to the increase in terms of the fund management fees and also in the improvement in the lodging business. I still recall, you know, in the many conversations that I have with the investors and the analysts last year when we were doing the restructuring, you know, asking whether the lodging business should be part of the CLI business. I think with the recovery that we are seeing in the lodging business, with the greater signings and the recent acquisition of Oakwood done by Kevin's team, I think it's starting to demonstrate that, you know, it delivers strong fee income and will continue to do so as the lodging sector continues to improve and will fit nicely to the bottom line.
I think from a results perspective, overall, I think our numbers could have done better if not for two reasons. One is really around the zero-COVID policy in China, especially in Shanghai, where we have the biggest exposure. That affected the contributions from the lodging sector. Secondly, in terms of the rebates that we need to provide for to help the retail tenants, especially in our shopping malls. I think that's largely gonna be one-off as the economy start to open up and, you know, the Chinese government taking a more enlightened approach towards the management of COVID and around all the restrictions. We believe that the sector will continue to improve. The other reason is largely around the capital recycling.
First half last year, we recycled about SGD 13 billion, largely due to a recapitalization of the Raffles City portfolio. SGD 13 billion, you know, that's quite a significant. This year, so far, year to date, we have done about SGD 1.6 billion. I think we are still quite confident that we should be able to deliver the SGD 3 billion target that we have set out to do. So there's quite a bit of work to catch up in the second half of the year. Apart from capital recycling, we will continue to focus in terms of the execution of the fund strategies. Happy to highlight that, you know, we have strengthened the teams at the country levels to look at off-market type deals.
Simon has also built up a capital raising teams over the next few months. In one to two months, we should be able to share more fund products. Also in terms of the acquisition, I just want to highlight that, I mean, things do take time to cook, so just be patient with us, but definitely, things are happening. Before I pass the mic to Andrew, who will go through the numbers in greater detail, I just want to. I mean, something that's not news to us, we are entering into a very volatile environment, things are extremely uncertain. We have economists and many of the major firms are predicting that we'll go into recession.
Interest rates have gone up, cost of capital have gone up for many, many companies, and that's why, you know, we have to be a lot more careful in the way we look for deals. We are seeing corrections in the public markets, and we have not seen the same level of correction in the private market side. You know, we are definitely on the lookout for deals, but we will be very careful in the way we pursue growth. Okay. Growth is still at the top of our mind, but we are not gonna pursue growth for growth's sake. Growth must be done on the basis of how we can create value for, the LPs, for unit holders, and how do we create long-term value on the earnings per share basis for CLI investors.
That's really the message that I hope to be able to share with all of you. Without further ado, I pass it to Andrew, who will go through the details, and we can have more Q&A later. Thanks, Andrew.
Thanks. Thanks, Chee Koon. Good morning, everyone. Just a quick one. First of all, thank you for joining us this early. With apologies to CDL, we'll try to get you away so that you can attend CDL. Recall last time we had the same problem, so we seem to keep converging. This must be an auspicious date that we keep picking. I'm actually reminded that we're not even one year old. To Chee Koon's point, if you think about the last 10-11 months, a lot has happened. We are executing as quickly and as sensibly as we can, but at the same time, very mindful of the very rapidly evolving macroeconomic environment.
As you look at our results and you look at what we're focused on, it's actually helpful for me to anchor back to the fact that at this time last year, we were still CapitaLand. We're not even CLI yet. We are still early days in our journey. Okay. Very quickly on summary of 1H. To us, this was a half of two halves, right? Q1, very strong, lots of evidence of recovery coming out of pandemic, operating environments normalizing, travel opening up. I think everyone was hit by a lot of events conflating to produce a difficult elevated VUCA environment. As Chee Koon mentioned, rapid inflation, supply side, demand side coming together, unprecedented. None of us have seen this in over 30 years.
Compounded by geopolitical concerns, Russia, Ukraine, adding to energy, adding to food, shortage, and then China, having to deal with COVID, having to deal with 20th Party Congress, having to deal with geopolitics. As you can see from the results, China affected us. I'll give you a bit more color as we get into it. I go straight to the overview of performance. Again, I'll focus on operating PATMI because this is what we are focused on, ultimately. Delighted to report that operating PATMI year-on-year up 31%, principally on the back of our fee income. That gives us confidence that we are on the right track.
On the fund management side, I'll give you some color later, but also equally on the lodging management side, both of our principal fee income generators generated strong year-on-year growth in operating PATMI. On the EBITDA and PATMI side, we see 30%+ drop, essentially coming from a fall off in capital recycling, right? As Chee Koon mentioned, SGD 11 billion last year, all-time high, coming back down to a more normalized run rate of at least SGD 3 billion, and then exacerbated by, as I mentioned, the lost quarter in China, where we essentially were not able to recycle any capital. There's zero capital recycle in China in 2Q, despite a very healthy planned amount of recycling at the start of the year. Again, something for us to catch up on.
Hopefully, if China approaches a more normalized operating environment in the second half of the year, it will give us an opportunity to catch up on some of that planned recycling that we have. On the capital stack and the balance sheet, I think very stable. Nothing really to report other than the market has continued to support us. We are trading now at a healthy 1.4x NAV, gives us share currency to go out and look for opportunities, if these difficulties persist and start to afflict other asset owners. A year-to-date shareholder return of 25%, which we are honored and blessed to continue to enjoy. Balance sheet net debt to equity, cash and available undrawn facilities, all there to be able to deploy when we find something that we feel is worthy of our capital.
As I mentioned on the focus on fee income, we are much more diversified business than we were pre-reorganization. Our view as a diversified REIT is to have as balanced a sector contribution as we can. As you can see today, out of the SGD 873 million, it is a fairly even split between the four key sectors. For those of you who have been following us before, you will know that in the past, this was not always the case. We are striving to achieve a well-calibrated balance across sectors, and I think we are getting there. I mentioned the focus on fee income growth, and again, delighted that both on lodging management and on fund management, you see very healthy year-over-year FRE growth and on LM growth.
On the execution side, the entire team is very focused on delivering on what we set out to do. We were still able to transact over SGD 4 billion worth of assets, both on the buying and the selling. Despite difficulties in China, we launched our first ever RMB fund. Strategically, I can tell you this is incredibly important for us in light of what we see evolving in China. Puah Tze Shyang and Lee Chee Koon can give you some more color on this. Obviously on the capital management side, as I mentioned, we will continue to remain very prudent of making sure we have dry powder to deploy as needed. Okay, second half, the focus is on two key areas. One is to continue to be very steadfast in how we execute.
Okay, on the fund management side, five of our six REITs were active in first half. We want to continue that. CLCT, again, difficult first half in China. Very eager to get going, and we hope to be able to get her going in the second half. On the PERA side, Simon Treacy, Patrick Boocock traversing the world, developing partner relationships and preparing fund product for launch when the environment is conducive for us to do so. We managed to get actually quite a few new funds underway in the first half. We were four times as more active in the first half of 2022 compared to the first half of 2021 on the fund side. There is evidence that we are still able to generate very good demand, very good interest across our LPs, cultivating new capital.
We are just faced with a difficult environment, and people are going to be much more selective, much more circumspect before they put capital to work. I think that affects not just us, but all REIMs. Lodging management sector tailwinds are strong. We'll show you how we have done in the first half. Not only were we able to grow organically, we were able to acquire a strong, healthy platform that we believe is highly complementary to our existing serviced residence business. As we mentioned, capital recycling, while not hitting the highs of last year, which were extraordinary, we are on track to deliver the run rate of at least SGD 3 billion. The other part of the strategy for the second half of the year, I think as Lee Chee Koon mentioned, is two Ps, right? Be patient, be prudent on capital deployment.
We are extensively stress testing every deal that comes to investment committee to ensure that all of the uncertainties around interest rates, around inflation, around cap rates, when we are entering, when we are exiting, are extensively stress tested to ensure that we're able to meet the respective hurdle rates of our LPs and our funds, as well as to be DPU accretive over time for our REITs, right? It is about capital management. It is about being a steward to third-party capital. We are not in the business to grow for growth's sake. When you look at our SGD 86 billion FUM, some of you may say, "Hey, it's flat, it didn't move." I mean, there's a reason for that. We were being very careful about deploying only when we felt it is right to do so.
As I mentioned, we have ample dry powder ready for deployment. Net debt to equity is 0.5. That gives me roughly SGD 2 billion per turn of net D/E. If I go from 0.5- 0.7, I've got SGD 4 billion of headroom that we can use to deploy for the right opportunities. We've introduced a concept called embedded FUM, and we'll talk a little bit about that later. We have about SGD 3.5 billion-SGD 3.7 billion of what I call embedded FUM, which is basically FUM that is already spoken for and will materialize in the near future. Then we will proactively manage the balance sheet to make sure that the capital is working as effectively as it can for us.
Our targets of capital recycling, SGD 3 billion annually, 160,000 lodging keys under management by 2023, SGD 100 billion organic growth in FUM by 2024 are all in place, and we are confident we will meet each and every one of those. Okay, I'll cycle quickly through some of the high numbers. So here you see the breakdown of PATMI, operating PATMI, as I mentioned, up 31%. We're very proud of this number. It is mainly due to both FM fees coming out of carry on two of our funds, as well as growth in recurring income, both on our REITs and our funds. And then particularly on the lodging management side, that belief and confidence that lodging was catching a nice tailwind is coming to pass.
We see very healthy growth, 44% up in RevPAR, on a year-on-year basis. Both of these fee income generators are contributing nicely to the core growth in operating PATMI. Offset, unfortunately, through portfolio gains. You know, last year, SGD 11.3 billion in first half. We did this at about a 10.5% premium to fair value. This was last year. We were, as Lee Chee Koon mentioned, the RC6 was the bulk of that, but we also sold Olinas Mall. We also sold Galaxis, converting Galaxis into FUM and converting the RC6 by retaining that as FUM as well, largely. This year, essentially it's been 79 RR , SGD 1.6 billion, as well as JCube, which was a non-core asset, but sold to our sister company in the hopes that one day we will get it back.
Now the premium is no less, it's 11%. We are continuing to sell well. We are continuing to sell at a disciplined rate, not generating capital recycling for the sake of it, right? We are not a distressed seller by any stretch of the imagination. As you can see, coming off the high, SGD 438 million last year on that, you know, an extraordinary level of capital recycling, coming back down to a more run rate, half year level, the portfolio gains naturally has come off. As a result, the total PATMI, which is all cash, is down 38% year-on-year to SGD 433 million. Still a very healthy number. Okay. Running across the EBITDA stack, I will give you a bit more flavor on our FRB operating contributions. It now contributes 31% to overall EBITDA. That is up year-on-year.
You want to see that trajectory. From a geographic perspective, the thing that strikes me is that China is down to 12% contribution. For fiscal 2021, we were at about 28%, 29% contribution from China, which is roughly where we would like it to be, around one-third. You can see that China really affected us first half of 2022. Last quarter, basically, very little got done. Then, as I mentioned earlier, on the asset class, you see well-calibrated, increasingly diversified portfolio, which is what we aim to be. Okay. This again breaks down the EBITDA, gives you some more flavor. I won't get into too much detail, but really what you wanna see on the operating EBITDA side, left-hand side, is that the FRB operating PATMI starts to replace the investment or the balance sheet operating PATMI.
We were almost able to get there. We want to see operating PATMI coming from our fee income business. We see that rising from SGD 135- SGD 225 year-on-year, up 67%. You really wanna see that offsetting your balance sheet operating PATMI, which has come off from SGD 599- SGD 505. We are almost there. On a year-on-year basis, we went from SGD 734- SGD 730. We dropped about SGD 4 million in operating EBITDA. The idea is to replace balance sheet operating EBITDA with fee income operating EBITDA, and this is something we will continue to strive towards. Driving into FRB, I think the numbers speak for themselves.
Steady growth in listed funds management, private funds management, strong growth on event-driven performance fees coming out of Vietnam and Singapore, lodging management, tailwind recovery, all of these showing healthy year-on-year growth, and then property management as a supporting relatively non-core part of the FRB stack. Overall FRB income up 16% year-on-year. Capital recycling. Again, as I mentioned, we are run rate capital recycling SGD 1.6 billion at the half year mark. A fair amount of activity going on. Total transaction value, SGD 4.1 billion, of which 93% of that generated FRE. This is again what we are in the business of doing, investing smartly, divesting when it makes sense, and if we can, retaining that FUM, moving from one product to another product and generating event-driven FRE in the process.
This is exactly what we are able to do. Increased investment activities by CLI's private funds. This is where I mentioned last year at this time, we only had two funds that were active. I think it was the ESCAP fund and one of our Indian logistics funds. This year, first half we had four funds active. We had COREF, we had ASRGF, we had SAVE, our new serviced residence fund, and we had India Logistics Fund also active. There is activity ramping up, the pace of which that ramp up is going to be dictated by the economic environment in the second half of the year. But again, we are very focused on executing and executing well. Okay. Capital management, I think nothing much to say here.
As you see, it's a strong balance sheet with capital ready to deploy. Okay. In terms of the contribution from FRB and REIB, so our fee income business and our balance sheet business, this is the proportion change that we are striving towards. On an EBITDA basis, from this time last year, we were at 18% contribution from FRB, now moving to 31%, at this point in 2022. On a PATMI level, the shift is more pronounced. We went from 31% to now roughly a 50-50 contribution split. For those of you who are doing your SOTPs, one dollar of FRB PATMI is not the same as one dollar of REIB PATMI, because the street values that vary differently. This is exactly what we're trying to accomplish, moving the PATMI stack from balance sheet to fee income. Okay.
I'll spend a bit of time here on fund management. Quite a lot to unpack. I'm sure all of you are focused on the FUM number. It's flat. What's going on? There's quite a bit going on. Let's look at the REIT side first. The REIT side was up SGD 2 billion, SGD 58 billion-SGD 60 billion, and the color is in the subsequent slides. Now, that SGD 2 billion was offset by the PRA side, which was down SGD 2 billion. Essentially what caused that SGD 2 billion drop in FUM is three things. One, we exited our Vietnam fund. Okay, that was about SGD 0.7 billion. Now that Vietnam fund exited at a very healthy IRR that generated substantial FRE for us, which you see on the right-hand side of the slide, where the event-driven private equity funds going up from SGD 6 million-SGD 43 million.
This is exactly what you wanna be doing in the PERA business. You wanna be exiting at the right number, at the right time, and generating substantial carry for your LPs and for ourselves. The other thing that happened was a net divestment. This was 79 Robinson Road that was divested to two products. Essentially we retained overall FUM on 79 RR. It's just that some of that FUM, SGD 800 million out of the SGD 1.2 billion, went to CICT. PERA's loss was, as REIT gained. It went actually from the SGD 28 billion to the SGD 58 billion, moving from PERA to REIT. The last amount is actually an FX change because the RMB depreciated about north of 3% for the year first half.
When you translate a lot of our China products into Singapore dollar, we dropped about SGD 0.8 billion of FX translation. On a Singapore dollar basis, you can see there's the reason why the PERA FUM is essentially down, but there are three good reasons why that is the case. Now let's look at this thing called embedded FUM. We've taken the SGD 86 billion, and what we've done is we've looked at the available capital that we have committed from the LPs that is ready for deployment. That's roughly about 1-1.2 to 1.3 billion. We add the relative gearing levels that each fund is able to deploy, and that gets us to an embedded FUM of about SGD 3.5 billion.
In addition to that, some of our REITs have announced transactions they have yet to close. A great example is AREIT on Philips, CLMT on the logistics properties that there was announced, but yet to close. That is not counted as FUM as of today, but I think that's embedded because it will be FUM in the not too distant future barring something very strange happening. On the REIT side, I can add about SGD 250 million of announced but not closed acquisitions to that SGD 3.5 billion of PERA embedded FUM. Altogether, we have about SGD 3.7 billion of incoming FUM, if you will, if that makes sense to you. Hopefully it does. On the right-hand side, again, gives you a flavor of how the FRE is taking shape. We are driving FRE growth.
Even though FUM is staying relatively flat, our funds and our REITs are starting to become more profitable because the new funds that Simon and Patrick are putting in place have much more market-oriented fee structures. At the same time, we are able to deliver event-driven fees. Although some of you will, I will agree with you that event-driven fees need to be proven over time to become quasi-recurring. I understand if you will take the event-driven with a pinch of salt, I would not argue with that. On the recurring side, you can still see growth on recurring income from REITs going from SGD 117 to SGD 125, growth in recurring income from private funds going from SGD 41 to SGD 42. The highest quality level of our FRE remains growing.
Our FRE to FUM is up from 50 to 52 basis points, and our EBITDA margin is up from 54%- 61%. The main metrics that we look at to measure the health of our funds management business are pointing in the right direction. Just some flavor here. I won't spend too much time, but look through these. These are our REITs. Five out of our six REITs are active in first half despite the challenge for core product. Given higher rates, higher inflation, five out of our six REITs, with the understandable exception of CLCT, were active. On the private fund side, we were able to generate SGD 830 million of total gross investments.
Multiple funds were active, and most notably our first RMB fund, which is the second one from the right, capitalizing on our new RMB license strategically. We can deal with this in Q&A. This is very important for us as a business when it comes to being able to continue to grow our China strategy and our China funds management business. I think lots more to come from the RMB capital pool in China. Now I'll let Tze Shyang and Simon and Chee Koon share more about that. You see the successful exit on the CVCVF fund, over 34% IRR and an equity multiple of north of 2.5x, which generated very substantial carry fees for us. Okay. Lodging management, won't spend too much time. Kevin is here.
He will take you through a lot of this, but all the tailwind metrics are there. FRE is up 37% year-on-year. We continue to sign record number of new keys whilst opening keys that we assigned had been signed 2-3 years ago. You add the Oakwood acquisition onto that, and we are already very close to the 160,000 keys in the system by 2023. I think it's safe to say that Kevin is cautiously optimistic that he will hit his 160,000 keys long before his stated target. I'm sure Lee Chee Koon will give him a new one very soon. Higher daily rates up 21%, occupancy is up 9%.
This generates that 44% increase in RevPAR. All of our geographies are showing, reflecting that tailwind, with the exception, again, of China. This is where you see last quarter in 2Q across the board, across many of our sectors and exposures in China. I won't touch on Oakwood. Okay, very quickly on the balance sheet side of things, NAV dropped by 0.7. This is largely due to two things. One, the dividend we paid, SGD 700 million. Secondly, FCTR. Currency translation moved us down by about SGD 400 million. We're back into the RMB drop again after making all of that back in the last year or so. Core market updates. I think the CEOs are here. Tze Shyang's on the phone, so I won't go too much into it.
We can give you some color on operating environments, retail, office, new economy and so on and so forth, for China, for India, and then for our other markets as well. Okay. We're spending a lot of time on sustainability. You can see a very healthy section to round out our IR deck. Our march towards our 2030 SMP targets continues. In some cases, we are way ahead of plan. For example, in energy and water intensity. In other cases, we still got some serious work to do, most notably in percentage of renewable energy. I think that's something that many companies are focused on. We have a new CSO. I hope many of you have met him. Vince has hit the ground running.
He's already out there talking to our ESG-minded investors, and getting the word out about our commitment to embed sustainability into everything that we do. Not wasting talent, we have asked Lynette to look after, work with Patrick on thinking about how we can craft, fund management products using our strength and our leadership position in ESG. It's one of the events that we think gives us a competitive advantage, not only in greening our business, but also in turning, opportunities into, management and funds management, investment opportunities as well. CSXC was a great success held last month. It's a good example of something that has worked really well for us in terms of energy saving.
We continue to remain fully committed on our CSR commitments, helping those in the community who are less fortunate than ourselves, and there are many. Okay, let me wrap up. Again, apologies for taking too long. As Lee Chee Koon mentioned, 2022, second half, a lot of question marks. We think China will gradually come out of the most difficult period, which was 2Q. There is a timing element to that, obviously centered around a party congress, probably in October, November. Post that, if things go well and smoothly, we think China has a lot of opportunity to make up for lost time, and we want to be ready to take full advantage of that. We are long China. We are strategic China. We have a competitive advantage in China. We are absolutely focused on growing our fee income business, as you can see.
We will maintain our capital management discipline and be ready to take advantage. We will continue to exercise patience and prudence. Sustainability will continue to be a part of everything that we do. Okay, thanks again, Grace.
Thank you, Chee Koon and Andrew. Now we will start our Q&A. Before we take questions from the floor, just give me a second. I just need to speak to our online viewers. If you have questions, please feel free to also join us. Type in your questions in the Q&A box at the bottom of your screens. Okay, Mervin's had his hands up first. We'll go to Mervin.
Yeah, enthusiastic. Yeah, Mervin from JP Morgan. Congrats on the strong operating value performance. Maybe we can start with the funds management business. Appreciate the color on the embedded FUM. That sounds quite positive. I think in the first quarter business update, the commentary was the North American investor is a bit more cautious. You're hopeful post-reopening China that the fund growth from China will kick in maybe in second half. Maybe some updates on how investors are feeling at this point in time. Second question is in terms of China. Obviously some headwinds in the first half whether you can quantify the impact in terms of tenant support they had to provide, loss in earnings from, I guess, the lack of travel.
Third question in terms of cap rate expansion, recession risks, how should we be thinking about revaluation gains by year-end? Should we still expect an uplift given the high earnings this year? Thanks.
Simon, you wanna take the question on funds?
Good morning. Thank you for the question. From a global investor perspective, looking outside into Asia, specifically China, North American investors are being hit by the denominating factor in terms of equities coming down, which is pushing their real asset allocations up towards their benchmarks. That said, they are underweight in Asia, and they're very keen for 2023 to increase their allocations. They're also very encouraged by the CapitaLand platform, which we've been introducing to them over the last six months, in earnest. The points of difference they see with us is our very strong presence in China and our ability to execute and understand risk. That is of particular interest. Notwithstanding the noise, there are various investors that will take steps to.
Take this opportunity to exploit the arbitrage in the private market. Overall, we're quite encouraged what 2023 could bring us.
Andrew, do you wanna talk about the China Puah Tze Shyang?
Why don't you get Puah Tze Shyang?
Puah Tze Shyang? Can we bring Puah Tze Shyang on?
Yes. Can you hear me?
Yep.
Thanks so much. First of all, on the support, we are looking at a game of two halves as Andrew has shared. First quarter was. It started really well for operating properties, you know, much stronger than 2021 second half. Then we hit, we were hit with unexpected events in the second half. In terms of operating properties, we are supporting our tenants. Okay, we are leveraging what we have learned in 2020 when COVID first struck. Then we have provided for the months of April to May, essentially. These are the two months where the impact was greatest for us.
If you look at the start of the year, we had sporadic COVID hits to Xi'an and then to Shenzhen, and then later on to Beijing, where we have no presence. You know? It was later really in the second quarter that our East China or Shanghai properties was hit. In terms of headline or top line, actually, happy to share our second quarter, in fact, our first half, top line were in line with last year. That did not take a hit. Our operating numbers or operating PATMI took a hit because we provided for the months of April and May in terms of rental rebates. If you look at Wuhan in the 2020, we provided about a month, right? Because it was essentially March.
Right now, for 2022, we are essentially providing about two months, which is April and May. Okay? That's in terms of what the impact to the operating expenses. We are now looking at a reopening from a very desolate second quarter. Say, for example, in Shanghai, right now we are back to the days we are fighting traffic to get back to work. Okay? The restaurants and the F&B scene is again active. Slowly but surely, the footfalls are returning, the sales is improving, so we're looking forward to a more regular second half. Barring, you know, lockdowns again, which we don't expect. We think the second half will be a lot stronger.
In terms of the domestic funds flow, I think the liquidity is there, and then the domestic capital sources are active looking to deploy. As Andrew has mentioned, we're very, very happy, very fortunate that we were able to at least get one of our pipeline renminbi funds launched in the first half. We were in fact affected also by the lockdown because we were essentially at home. We can't even get out of our homes, okay, let alone register our various fund initiatives.
Second half, okay, we are cautiously optimistic that we will be able to move forward some of our pursuits and then the special situations, opportunities that we are seeing in China, okay, will give us a good pipeline, and then we are looking forward to launching more renminbi funds in the second half. Again, barring COVID. Thank you.
Thanks, Puah Tze Shyang.
Puah Tze Shyang, just to clarify, right, the two months is for Shanghai. If I'm not mistaken, on a portfolio basis, it's something about something around the likes of 1.2, and this is only on retail, if I'm not mistaken.
Andrew, you're right. COVID has actually affected our retail properties. Our business park properties very resilient. Rental reversions, you know, positive, close to double digit. Our office, if you look at the slide on China, the office occupancies are also steady. In fact, our retail occupancies are north of 90%, right? It's really because we have provided for rental rebates that our PATMI numbers are affected. Just additional point on China. I mean, China, no matter what we say, is still the second-largest economy. You know, the more than 1 billion population, I would say the largest in terms of the middle class that generally can spend. Strong consumption ability. We have a pretty diversified asset class.
Team has been around for more than 20 years. Ability to source deals. Reputation-wise is great, whether it's with the local governments, with the people who work for us, with the banks. I mean, since, you know, ever since the first day, you know, even pre-CapitaLand days, you know, in the Pidemco or DBS Land days when, you know, CapitaLand started investing in China, we've always completed every single project, developed very deep relationship and trust in the local community. I do believe that that puts the team in China in a pretty good position to be able to capitalize.
There are definitely strong pent-up demand from the local domestic capital to look for quality assets, good portfolio in terms of being able to deploy the capital that's put the capital with managers that you know they feel comfortable.
In portfolio debt is generally well-managed. I think that's an important point that I want to stress. China will continue to be an important part, and you will see us leveraging a lot more on domestic capital to help fund the growth of the China business.
On the reval?
All right. Melvin, your question was on second half. Currently, we don't think there will be a material impact to valuation. We had to do it for first half informally, internally, because there's a statement we need to make in our official earnings release. We sampled about 70% of the entire IP portfolio, either through our REITs or funds, or ourselves. On a portfolio level, it's flat. Obviously, some selectively down in some China retail, but overall, China is also roughly flat because we've got strong business park positive reversions as well, and DC reversions. China itself, while probably being the main concern, is flat, and Lee Chee Koon give some color. Then the rest of the markets, I mean, Singapore, you guys know well, is the place to be right now in terms of investment properties.
We don't see that being an issue second half. The rest of the world, yes, we still will see some pressures. We have no real evidence of cap rates moving anytime, anywhere soon, given the still healthy appetite, as Chee Koon said, on the private side, particularly, for people to hold their valuations and want to sell at a high price. There's no desire for distressed sales at this point in time just yet. Transactions being what they are, and usually material input to the ascertainment of valuations, we don't see that being a factor as yet, now. I don't know if anyone else has a comment. John, on values? No. Okay. Chee Koon?
It won't fall, but we see we book a positive gain by year-over-year. Should we assume zero?
Assume zero. If you look at our focus on cash, right? We are very focused on cash back, you know, and delivering an ROE that essentially is cash-based. If I get a 1% increase in fair value, we'll take it, but it's no longer a key component in how we measure return on equity to investors, if that helps. Thanks, Mervyn.
Louis?
Thank you. Morning. Louis from Credit Suisse. I've just got two questions. One is really a clarification. So I noticed that yes, on the EBITDA basis, 1.2 months of rental rebates from China, I think that caused the REIB operating EBITDA decline. When I look at the, you know, the appendix, if I look at the NPI in China for existing office, retail, existing NPIs are flat, but the new economy NPI is actually up. So just wanted to square the EBITDA decline versus the NPI, which seems to be quite stable or even up. And the second is really more a broader question. I understand that, I think Chee Koon and Andrew both mentioned that in the current environment, it's important for CLI to be prudent.
At the same time, if I look at some of the other peers, they have still been able to grow FUM, AUM. At the same time, I think Andrew also mentioned that right now, valuations are still holding up, especially in the private markets. I would imagine that when it comes to divestments, it will be a lot easier as opposed to investments, but both seem to be relatively low at this point in time. Even if you do hit SGD 3 billion, you'll be closer to 2020 kind of COVID levels versus, say, even in 2019, I think it was closer to SGD 6 billion under the whole CapitaLand.
Just wanted to understand if you'll be able to share a bit more color as to what is actually holding back management when it comes to both the investment side as well as the divestment side?
Okay. Let me take a stab at it. I'm sure my colleagues may have something to add. On REIB EBITDA, two things have essentially happened. One was rental rebates, so about 1.2 months worth on a system portfolio basis in China retail. The other thing that happened is actually our share of the assets we own, either through funds, REITs or on balance sheet, has come down as we are recycling. There's a lower amount of share of EBITDA, particularly from RC6, which is quite substantial, as you could imagine. You have Olinas coming off, Galaxis coming off year-on-year basis and so on and so forth. As we are recycling capital, this is the point I made around the operating EBITDA, right?
As we are recycling capital and we're losing operating EBITDA from the REIB part of the business, the important thing for us to be able to do is to replace that with operating EBITDA from the FRB side of the business. Our fee income has to grow to replace the loss of operating EBITDA from REIB as you're converting that balance sheet into FUM, and you are making net investments in platforms, in lodging platforms, in funds management platforms, and launching new funds and so on and so forth. This is not easy to do, but you wanna try and continue that process as quickly as possible and get there so that we can seamlessly replace one stack of operating EBITDA with a much more valuable stack of operating EBITDA in the eyes of the market.
As I mentioned, that dollar from REIB is worth to the market very different terms to one dollar of FRB operating EBITDA. Then, sorry, it was recycling. Okay. Give you a couple of scenarios. If it's all about China, where we land on recycling, honestly, is going to be about China. What China does in the next six months. If China continues on this trajectory of gradually reopening, I think we will comfortably pass SGD 3 billion because Puah Tze Shyang will be able to catch up. As I mentioned, we have north of RMB 5 billion that had to be deferred because of the lost quarter. If we get that back in the second half, and we're able to recycle, then we are comfortably past SGD 3 billion, but maybe into the fours and the fives.
If China switches off, let's say until November because of 20th Party Congress, then ex-China recycling, we can still get to three, but it may be one of those years where we just have to take a pause and recognize that this is gonna take longer than we had hoped. If we get a full recovery, and we've got all the taps are open, the original plan this year was actually a very ambitious amount of capital recycling. There is a way upside case for which we get a very nice level. You know, honestly, we are running out of time. We are already in August.
If we can settle for the first case where China gets to catch up in some way, then I think we'll take that as a good year and a typical year for CLI going forward. Puah Tze Shyang, would you agree with that?
Thanks, Andrew.
Yeah.
Andrew, much of our asset recycling plans, as you rightfully put it, they are not off. They're just deferred because of the last quarter. The state of the business environment for second half is still subject to many things that the government actually has a lot of control over. zero-COVID, geopolitics, deleveraging. To some extent, these are all pretty much in the hands of the policymakers. They're man-made. We do feel that China has a lot of tools, both fiscal and monetary tools to revive growth in the second half. There are some expectations, but everyone is looking forward to some upside for second half. We may not get back to 5.5%, but general consensus on the street, probably between 3%-4%.
With that backdrop, activities on the investments fronts will recover to some extent. Our properties are very well-run. As Chee Koon has mentioned, we have a strong asset management team on the ground, close to 30 years of experience. Robust earnings despite COVID, that's our offering. We still remain confident that if the general market recovers, we should be able to continue and catch up in the second half. We're generally of the opinion that the government is wary of debt buildup again. Those broad-based easing is not likely to happen, but at least the liquidity at the domestic capital sources, they are active.
We have had a great partnership with one of the largest domestic capital institutional investors last year in recycling and recapitalizing our Raffles City portfolio. We're gonna continue to leverage that momentum, okay, and we remain confident that we should be able to pick up in the second half.
Louis, just to add another point for perspective. I mean, if you look at the China side, the large part of the planned recycling, it's in the retail sector. It's affected by COVID. I mean, if you look at the retail scene in Singapore, post-COVID, you look at how the malls are performing. I mean, indeed, during the peaks of COVID, you know, there were negative rental reversion types of pressure. There's really no point to rush to recycle or to exit any investment when the environment is not the most favorable, because we do want to make sure that we can.
I mean, especially when we know that we have the ability to manage and to lease up the property, there's no need to rush to do something that we do not believe that's in the long-term interest of our investors. Yeah.
Okay, next question, David Lum.
Good morning. David Lum from Daiwa. Chee Koon, I wanna follow- up on a statement you made, in your presentation. You're gonna be careful in the way you look at deals. I thought all along that was the operating procedure. Is there anything, you know, geopolitical, macro or certain red flags in asset classes or countries that make you want to look at deals more carefully now, or was that a general statement? Yeah.
It is more a general statement, but actually I am of the view that if the major economies are right that we are going into a recession, the interest rates are going to normalize, say about 3.5%. I do believe that there could be more potential opportunities in some of the asset classes where the cap rates have been low, and there should be opportunities. There's no need to rush to do deals that we believe, you know, is not going to cross our investment hurdle. I mean, if you look at our portfolio today, it's diversified, extremely cash generative. If you look at the balance sheet, the health of our balance sheet today has never been better than ever before in the history of CapitaLand.
Actually position us very well for us to take counter-cyclical positions. I mean, if you turn back the clock, you know, into CapitaLand in, say, 2008, 2009, during the great financial crisis, there was good opportunity at that point in time to take counter-cyclical position because, you know, you see asset prices correcting, you see portfolio becoming available. By that point in time, CapitaLand was had to deal with many of the commitments on development projects that we had to make sure that we support and see through. As a result, you know, there was very little ammunition that was available for us to take big positions that could really position us well, and as the economy continues to recover, and that really will set us apart from competition.
I want to say is that, I mean, we are entering into a volatile environment. We want to be careful. There's no need to rush and jump, but we want to make sure that when we look at deals that can really make a difference, move the needle, and we are prepared to use the balance sheet that I believe can really put us in a much stronger position going to the future. That's really the context around my comment.
Shen.
Hi. Morning. This is Tang Shen here from Goldman. The first question is on ROE. Can you comment a bit on first half run rate, and also thoughts on full year ROE? And then secondly is on FUM growth. How confident are you to get to about 10% this year? And is it more likely to come from REITs or private funds? Thank you.
Thanks, Shen. ROE, if we can get to about 8% cash ROE, I think we'll say that in this current context would be pretty decent. Let's see how the second half turns out. In terms of FUM, I would say again, similarly, while we would try to aim for 10% organic growth, I think this year might be challenging given we've already lost one quarter. A lot of that FUM growth is anchored in, by China. Unless we get that nice upside scenario where everything opens up very quickly, we may have to defer some of that growth to first half of 2023, post-Party Congress. The pipe is there, the opportunities are there, the capital is there. It's just that the environment is not conducive enough for us to execute.
To Lee Chee Koon's point, actually, we don't see the need to rush because you can go in too early in these things. If you are a bit patient and you allow the situation to evolve, and if we believe things are gonna get worse macroeconomically before they get better, then logic dictates that we should wait and just keep the powder dry. Just continue to execute, demonstrate that we know what we're doing in terms of operations, sell when we can, which we have been doing, and recycle capital when we can. If we don't hit our target, that's fine. If we have a good reason why, it doesn't mean that we're not gonna make up for it later down the road. Again, we've done this before, and we'll do this again at Investor Day.
If you time it right, you actually can reap the benefits for many years, going down. Once you have a crisis that is not of your own doing, but the key is to take full advantage of that crisis. Part of that, a lot of that actually is timing based. You know, Chee Koon's preaching patience. The board is happy to be patient. What is important is we keep the powder dry, and we keep our shareholders and stakeholders informed as to what our plans are, so that when we do pull the trigger, then everyone understands why we've done that.
Derek, you have the
Good morning. Derek from DBS here. I just have two questions. One is on back to China. I'm just wondering whether in terms of investors' appetite and type of assets that they like to invest in, has it changed, like, since, like, one year ago? Because of how China has politically, I think the whole risk profile of China has changed. I'm just wondering, what are you hearing on the ground in terms of your investors' feedback? Secondly, if I can, and it's a bit sensitive, but if there's a strategy opportunity in Singapore, would a sponsor be happy to lend your balance sheet? For example, let's say your listed platforms or private platforms can't take it on their own.
Hypothetically.
Hypothetically.
On China, I think investors are generally quite keen to support deployment of assets that are in line with the broad policy direction of the Chinese government. Whether it is retail assets that, you know, caters to mass consumption, business parks that continue to drive manufacturing ability, R&D type abilities, life sciences type project, data centers, logistics that helps, you know, especially cold chain logistics type that helps in the overall development of the economy or rental housing that generally caters to demand for shortfall for housing. I think that's generally in line. That, if you look at CLI, that's generally the asset classes that we are in. In terms of residential sector,
Typically, the build to sell, the things that, you know, the old CapitaLand used to do, now is done by our sister company. That is something that many of the investors, especially foreign investors, are a bit more careful. I mean, a lot of especially foreign investors, they are not sure how the boycott of the mortgages and the extent of the issues would be happening. Actually, you see the SOE sort of stepping up to the plate and doing that. We are not in that space, so we are generally not so worried about that. In terms of your second question, I think having the balance sheet gives us the flexibility to be prepared to support the vehicles, whether it is the REITs or the private funds to take strategic positions.
If we are going to use our balance sheet, we do want to make sure that it must be able to drive long-term shareholder value for the CLI investors. Because if we're gonna use a balance sheet just to support the vehicles and in the end, you know, it doesn't benefit the CLI investors, I think the investors are gonna be very unhappy with us. We will be prepared to consider to use in joint partnership so that in the end, we create not just values for either the LPs or for the unitholders, but also for the CLI investors. The other thing not to forget is that, you know, when the whole restructuring was done, we created a CL ecosystem where there's CLI and there's a CLD.
You know, where there are interesting opportunities that could happen, you can see us working in partnership with CLD folks, you know, to undertake some of the development type projects or, say, their portfolio where they may develop, and we take the income producing asset. All these are possible. Yeah.
We'll have next question from Joy, and then we'll move on to the right-hand side of the hall.
Thank you. Joy from HSBC. Two questions from me. First, just to clarify, Simon, I think you mentioned that the investors are generally underweight Asia. Is that underweight sort of driven by China alone, or this is across Asia region? Two, if I can just understand a little bit more on China domestic sort of capital market, where are your key capital sources coming from, and how has that changed or does any sort of regulatory environment change the source of capital? Then just lastly, on overall FUM, given where we are in property cycles, would you be open to actually divest more and take a temporary sort of pause on your FUM growth in the near- term? Yeah. Thank you.
Thanks, Joy. In terms of investors under allocation to Asia, it's a function of a few things. Primarily in the U.S., for instance, and even in the U.K., the returns from the core markets have been particularly strong. Calendar year last year was 20% in the core ODCE space in the U.S. and about 15% in U.K. They've been spoiled for returns locally and therefore haven't really needed to pay that much attention to Asia at a time when they couldn't really move freely to come and evaluate managers in the markets. The most recent core returns have come off quite significantly, and therefore, they are turning back to the diversification route, actively pursuing and starting to travel.
There is a quasi wait and see, right, in terms of China, no doubt, but it is a needle in the haystack type of opportunity, and we are finding various investors that will look to take contrarian views and position their capital early to really capitalize upon the opportunities. The other aspect is we've recently launched some research papers that hopefully you've downloaded from the website. They're getting very well-read internationally because they're very down to earth, practical on where we see value, where we see risk. That's been the platform for our discussions globally with investors, and that's really at a time when they're seeing the new CapitaLand as being a different type of GP from the others in the market. Similarly, you have at the moment a tsunami effect, where GPs with large committed capital have had to turn off China.
They can't get people in and out as opposed to us, and therefore, the money is washing down into the more mature markets, Japan, Australia, Korea, and obviously quite significantly here in Singapore. There's a little bit of a wait for us here to just make sure we're picking off the right opportunities. There's a lot of enthusiasm here. There's a lot of value add capital pricing down at core plus levels, which we're quite happy just to step back from. That's just a few comments.
On recycling, I think I mentioned earlier we will not grow AUM for AUM's sake. It must be founded on the basis that, you know, we are, you know, doing everything on how do we think about the returns to the LPs, the unitholders, and for the larger CLI investor space. If there's a need to recycle to reconstitute the portfolio, we can get good value, improve the quality of the portfolio, we will definitely do that. I think at the end of the day, being asset managers for, at least for the REIT's portfolio, we want to make sure that the
Various REITs will continue to own assets, good locations, those assets are in positions where we can asset manage, continue to drive rental growth, and there's still value to be done. If there are some assets that we feel that, you know, in terms of, the positions, it may no longer be so core and we are unable to add further value, we definitely will look for opportunities to divest them. I think, Jonathan, and his team has done quite a bit of that on that front. Jon, you wanna give a bit more color?
Joy, thanks. Thanks for the question. I think as far as divestment, I see divestment on two levels rather. One is at a CLI level. Obviously, CLI can divest more, and we can divest to the market, or we can divest to also aid our funds to grow, whether it's public or private. I think that's where we need to take both short-term and long-term consideration and back to them. Clearly, divesting an asset to the REIT, it helps CLI. It also help basically the various REITs or the private funds to basically further their income. Just because the market is such that it probably makes more sense at this point, potentially to unlock value, we also need to think what's the intrinsic value that comes with any divestment.
At the REIT level, which is basically what Chee Koon mentioned in terms of reconstituting portfolio, you see that we are not attached to our assets. Where it makes sense, we obviously are happy to divest and recycle. This whole idea of recycling is you have to look at investment and divestment at the same time. What is the use of proceeds? What does it do to the equity returns to our shareholders and our unitholders? If we are able to create more value by selling and redeploy the money to enhance the returns, obviously, we can do that. If we are just gonna sell, of course, we can pay down debt if interest cost is that high. That is still a very possible reason why we want to do it. What I'm trying to say is divestment is not an action on its own.
It's also what do we do with the money? That's something we also have to take into consideration. I think in the current market, we do see opportunity to also squeeze the asset performance a bit more. We're just in the midst of finalizing every little bit of the asset enhancement at Raffles City, Singapore. We have announced our intention to do Clarke Quay. Earlier on, you saw in Andrew's slide on Bugis Junction enhancement. We do see opportunity to also ride on a tailwind at the asset level to basically enhance the performance to put the asset in a stronger position. At a point in time, we can still look at the whole portfolio reconstitution and see whether it makes sense to do any of those actions at that point.
I hope that also addressed not just your question, but also Louis' and their question.
Okay. Joy, I think you had a second question more on the regulatory aspects, right? Yeah. Joy's question was where are the key capital sources coming from for China in China?
Puah Tze Shyang, you wanna take it?
Puah Tze Shyang, would you like to take this question, the key capital sources and,
Thanks, Grace.
Yeah.
Thanks, Joy, for the question. In China itself, I think we are really looking to tap the largest source of liquidity, which presently resides with the insurance companies. That's the largest. We're also looking to work with the asset management cos. They are backed by the banks, and most of them are state-owned, so they also have a large pool of capital that will need to deploy. The third source is state-owned enterprises. State-owned enterprises are also endowed with sufficient liquidity, and they are also looking to deploy. These are the three major sources of capital. In terms of regulatory control, I think in the second half, the government is actually looking to support the property sector.
We recall in 2021, the regulation was actually against developers. Then a lot of the financing channels, whether it's strata sales, bank financing or bond market, they were quite restricted. Yeah. In the second half, I think there should be policy easing, and then the regulation should favor the deployment of capital towards real estate, not so much to turn a bust into a boom, but to support the regular execution. In short, we're really looking to these big capital sources, especially the insurance companies, and I hope to also be able to work with the pension funds moving forward.
Maybe I'll also ask, Patrick and Simon, about capital sources that we've probably been working with outside of China who may be interested in China. Maybe you wanna give some color. Patrick?
Hello. I would describe investors that are outside of China that are interested in China as being very selective. Often they are large sovereign wealth funds or very large pension funds who have been investing in China for many years. For those who have been investing for many years, they see the growth in China. They see how, you know, the economy circulates every day just like any other market in the Western world, and they're very confident in the future of China. For some of the smaller funds who have not had a lot of exposure or frankly haven't had any exposure in China, I think in the current environment are largely saying, "We're just not interested.
This is not a market we're able to invest in now, unless it was part of a, you know, much larger fund that had a, you know, call it a small allocation to China. Simon, did you have some views?
I mean, again, it's a global wait and watch on China, but each investor has their policy statement in what they're allowed to invest in and not.
Sometimes it's just a straight red line through China, given the current environment. There's other pension funds and sovereign funds who can invest in a diversified fund, which has a component which can invest in China. That's a tick. There's also investors who can invest if China's part of the MSCI index as well, which is what I heard in the States last week. It comes back to the investment policy statement of these investors. Generally, investors morally aren't against investing in China. It's more a matter of when they start their program up again. Again, our debt research paper that you'll find on the Internet covers off all the issues that are on their mind that they're actively monitoring. There are several that are starting to just pick up the pencil again and start analyzing how they would want to re-enter.
I think that's where we're really, really well positioned.
Thank you, Simon, Patrick. I'll go to Donald before Brendan.
Hi. Hi, Donald from Bank of America. Two questions from me. First is, outside of China, where should we expect the new fund formations to come from to make up the remaining recycling target that Andrew, you mentioned earlier? Also maybe some updates, any progress on the real assets kind of business in terms of infrastructure. Are we looking at these kind of platforms already? That's the first question. The second question is more on the EBITDA contribution. Andrew, you mentioned that it takes a while for the fee EBITDA to catch up to the real estate EBITDA that you lost right now. Is there a way that you're looking to balance this as fee EBITDA takes time to come through?
Also, when you look at your contribution with EPRA, being in EPRA, is that a consideration when you manage your EBITDA? Because now it's at 31% from fee income. Would this be something that you're watching for your shareholders? Thanks.
Progress over the funds?
I'll start on with the funds and pass over to Simon. I think in general, for investment opportunities outside of China, knowing that we wanna focus largely on Asia-Pacific, I think the next big market we are focused on and where we have a decent track record is India. We do believe that there's an increasing investor interest in India in various forms. The other obvious countries are Korea, Japan, and Australia, where we have a decent team on the ground in all three of those countries. We're building capabilities, we're developing investment strategies, and we believe, and obviously, global investors would find those markets very attractive in particular.
The second part of your question was, have we advanced or are we continuing to look at infrastructure-related investment strategies? On that, I would say absolutely. We're continuing to plant the seeds, build capabilities, develop strategy. I think for us, we're looking for strategies that are, you know, are closely related or approximate to our core real estate DNA. Right out of the gate, one can see things like renewable energy as fitting that box. As I said, we are planting the seeds and building capabilities. We'll get there soon.
In terms of funds, we have the Core Plus open-ended fund. That continues to receive good feedback from investors. We have several studying that a lot closer, which is encouraging. As you are aware, we acquired our fourth property in Northern Australia for that Core Plus fund, and we have a very active pipeline, and we have a very active season in Europe coming up to talk to investors about coming into that fund. In terms of China, again, there are special situations, which we're capitalizing upon in country with the RMB fund. Externally, we have US dollar interest to also capitalize upon those opportunities. Again, we're very encouraged by the activity we have at the moment there, and looking to pick the right time to capitalize on what we're seeing on the ground with the country team.
Donald, your second question was on EBITDA, was it?
It's art and a science. You have to, as we sit down and do the budget every year, the two-year budget, it's more a process of getting there. It will be lumpy, right? There will be times when you are able to recycle successfully, when you lose that operating EBITDA off the balance sheet or share off, and then takes time for that FUM to build. I wouldn't say that it will get it spot on every year, but the idea is to arrive at an operating model that allows us to deliver an operating EBITDA that is based off largely of FRB. At a balance or at an operating model, which quite frankly, we haven't landed on yet, right? As you know, when we first did this, we have the ability to go all the way to a very asset-light business.
We have the ability to stop somewhere in between if we find that there is merit to retaining some of that REIB business, because it gives us flexibility that Lee Chee Koon talked about. It gives us that balance sheet headroom to incubate.
To take positions ahead of FUM formation at a time where it could be a case where your core product is jammed, cannot move, right? It could be entering that period the next six months, who knows? Having a balance sheet to us gives us actually added flexibility, added agility, to be able to take positions in advance of FUM formation. That may be a timing differential there, and then at some point in time, we take that off the balance sheet. We did this by design, because we knew that there would be times when, to Derek's question, we may need to step in to help. We may need to step in to take first and then be very disciplined about when that comes off. That's the difference with CLI today and CL, perhaps, prior to reorg, right?
If we take this on, we have a date circled as to when it comes off, and there are people in the organization responsible for making that happen. If it doesn't happen, then questions will be asked. It is, again, an art and a science. It goes into the planning process. We have a strategic flexibility that in the next three to five years as to where we land up on the operating model. We like it that way because there's a lot that's happening out there that may result in having a balance sheet being a good strategic tool. Sorry I didn't answer your question specifically, but there actually is. It is really looking forward three to five years and figuring out, okay, how much hit, how much flexibility do we really need?
How fast do we wanna go to an asset-light model? Because there is a lot of stuff that may require headroom and balance sheet to incubate, to help our funds, help our REITs, and so on and so forth. You see some of these things appearing right now, and some of these things can be very material. If you're on your own as one vehicle and you can't acquire, having a parent, having a sibling, having a cousin, having an ecosystem, shall I say, that can come in and we all can take different bits and pieces, I think is strategically very useful in the next little while. Now, last question was for S- REIT. We are prepared to one day drop off if the operating model takes us there.
This year?
No, it won't happen this year. We'll be fine. Yeah, and we have a cure period as well. Even if we don't make it in terms of fee income, is it 50%? 75%? 50%?
25%. Even if you get past 25%, we'll have a cure period, and we may decide that we can sustain this, and it's time for us to be seen as a REIT and drop off as S-REIT. We're absolutely prepared for that to happen.
I think the important thing is whether we have a resilient business model that's, you know, generates strong cash flow and gives us the optionality. To me, whether we need to be the Nareit index, to me, honestly, I'm not so worried. As long as the business model is strong, you have a competitive offering, ability to find good deals, ability to generate a lot of interest from investors that want to support us in terms of the various products. I think if we can do that, then you can create long-term shareholder value. Frankly speaking, I'm not so worried about that. Yeah.
I just wanna give Kevin an opportunity 'cause lodging is very active right now, and I know you guys all focus on China. I wanna give Kevin an opportunity to talk about some of his funds. I mean, they are busy working on a lot of FM product. It's not just about China. I know China is the focus today, but there is a lot of FM product that's in the works. Maybe, Kev, can I trouble you to give some flavor on some of the FM product that.
Ye ah. Just a quick one. We have actually two parts of the business that I'm managing. One is really the lodging management as well as the lodging funds. You have seen that lodging management, the numbers are very encouraging. If you look at us coming off the back of a record year last year, we signed about 15,000 keys last year. Now we at mid-year, we're at 7,500, and it's actually, you know, 30%+ more than last year. We're also opening more units. Everything that we sign in the past few years are coming online, right? And as they come online, we'll earn fees, and the fees flow through, and that's where we get a nice margin. On top of that, we're also growing inorganically. We added Oakwood.
Oakwood comes with 15,000 keys. Eight thousand five of them are operational. Those ones, again, contribute very nicely to the fees. We have a new brand to grow. We see Oakwood as a global brand. It's got very sticky brand recall in the U.S., in Japan, in Korea, even in Australia, where they recently opened a new one. It gives us another engine of growth to boost lodging fee income. On the fund side of things, you will see that we've been quite active. We set up the student accommodation fund with Riyad Capital earlier on this year. We've been deploying. We bought one. We have another couple more in the pipe that is gonna come very soon, or we're gonna sign very soon.
We have the Ascott Serviced Residence Global Fund, which has been very active. We just bought Tokyo, Ginza lyf last week. We bought Bondi in Sydney, I think last month. We continue to deploy. We bought Amsterdam as well. Very rare freehold property in the Canal District that, you know, is really a prized asset for us. I feel very encouraged by a few things, right? I think number one, we see the lodging demand coming through very strong. We started the first quarter a little bit unsure, but as we go into the second quarter, the recovery is very apparent.
Although we hear about inflation of costs, you know, power or raw materials, the rates that we are able to command far outpace the cost of doing business in the respective countries. We see that momentum going into the third quarter, even the fourth quarter. I'm very positive about lodging this year. We're careful about next year because of the headwinds that Chee Koon mentioned, whether recession, interest rates. But I think we are in a very good position. It's a very simple business model, right? We scale, we operate, we collect fees, we push everything down to the bottom line. That's why you see the fee income contribution coming from lodging coming on very strongly.
I think there's a lot of momentum behind us because of all the signings we have done. This year, we're probably gonna hit 30,000 keys or close to 30,000 keys with both organic and inorganic acquisitions. I just wanna leave you with that. I'm very hopeful about lodging, and I think lodging can play a bigger part in terms of contributing to the overall of CLI.
I just wanna add to that. I knew there's a reason I asked Kevin to chime in, and that's to your point, Donald, about operating EBITDA. In the past, right, in the last few years, lodging contributed very little to our operating EBITDA because they were going through an awful time with COVID. If we get this type of tailwind continuing and the LM platform starts to really hit its stride and get scale, right? You're getting these keys that are coming into the system, turning operational, margins that are expanding. All of this starts to, as Kevin says, the operating model kicks it right down to EBITDA. The operating EBITDA contribution doesn't just come from FM, it actually comes a lot from LM increasingly going forward.
As we hit 160,000 keys and beyond through organic and inorganic growth, as LM hits critical mass and margins start to hit the type of levels that one would expect from your best-in-class lodging operators, then you start to see a very healthy component of operating EBITDA start to come in from the LM side, where typically, you know, historically, we haven't had to enjoy that largely because of COVID. This is actually a very important pillar of the operating model for us at CLI, something that many other REIMs do not have. He actually gets two bites of the cherry. He gets to take FM fee, and then if he's operating the product, he takes an LM fee on the fund that he manages or the REIT that he manages.
Lodging is double layer for the right reason. We are operator as well as fund manager. If you get it right, it's actually a very interesting part of business that not many people can do.
Sorry, Andrew. On China, it is actually positive for us. Of the 7,500 keys that we signed, first half, I think half of it comes from China, right? We're focusing on products that are very policy-aligned. We've signed rental apartments, management contracts with local SOEs, with local governments. We continue to sign the Citadines, the Somerset and the Ascott. Despite all these headwinds in China, it's actually performing very well for us on the asset light front of signing up new keys and generating fee income. Right. I just also wanna leave you with that to say that actually there are bright sparks in China, and people are still confident because if they're not confident, they won't be signing up new buildings and new contracts with us.
I also do see that China will probably turn around at some point, hopefully this year, and things will go back on track soon.
Okay. I'm just mindful of time. We'll take one last question from Brendan. I'm sorry, I see a few more raised hands, but we have to take this offline. We'll get to Brendan. One quick question, please.
I'll give two if it's possible.
Okay.
Yeah. The first one is for Chee Koon, right. I just wanted to find out whether there's been any updates on strategic platforms. I think this was something which you mentioned when CLI was first formed. Are there any interesting opportunities in the market now? Given the existing environment, what kind of multiples will you be willing to pay? Yeah, that's my first one. The second one is more for Andrew Lim. It's about the dividend for this year, second half. Let's say if we were to really not see China recover and the divestment goes to about just north of three, could we still look at that SGD 0.11-SGD 0.12 kind of number or the 40%-50% of cash for me? Thanks.
Thanks. On question one, definitely we are extremely active in looking at platform opportunities, whether it's. I mean, the initial focus is really around Asia-Pac. That's, you know, I mentioned before, when we look at platforms, we look at, you know, what strategic capabilities are we adding, whether it's in the form of certain asset classes in a certain geography or capital raising ability. So we need to be very clear, point number one. Point number two, it's in terms of the pricing. I'm not so concerned about the multiple that you pay. I'm more concerned about even if you pay 20, 25x , are you able to be, is it gonna be additive to the bottom line of CLI in the long run? I mean, if I.
If it's a platform I pay 10x multiple, and it doesn't do very much to my multiple, and doesn't create a new growth engine, to me it's not so interesting. If I'm prepared to look at a platform that's strategic, add new growth engine, and if I overpay a little bit, but in the end it drives long-term value creation, I think that's something that I'm prepared to do. The third consideration is whether we have the team to be able to execute the strategy and to be able to integrate the capabilities. These are the few consideration. Of course, there could be possibilities where, you know, we may just own a very strategic stake in a platform and let it continue to run.
Under that situation, you know, in terms of ability to integrate, may not be top of mind, and just let it continue to operate on its own. It depends. But I must say that, you know, M&A looking for capabilities to add on is something definitely at the top of our mind. Yeah. On your second question, there's no real change to our plans on the core div. If you look at our historical track record, we've always aimed to deliver on the core dividend, Brandon. Not much I can say in addition to that at this point in time. Thanks.
Okay. Maybe I'll invite Chee Koon for some closing remarks. Maybe I'll just say that, you know, we're seeing some reaction to the top line numbers on our share price, so maybe, Chee Koon, you can address that, you know.
I mean we.
Give people some confidence.
No, I mean, not surprising that the market will react. I think the key about building the business. I mean, we make the commitment to do the restructuring to build the to grow asset, like to build a fee income business. It takes time to make things happen. You know, we're generally confident because of the teams that we have built up, the opportunities that we are seeing. Sometimes, you know, I mean, the timing, if everything goes according to plan and according to the timing of the results briefing, then it's all good. You know, life doesn't operate in that manner. I mean, we are actually quite confident about the team and the ability to execute.
I think the most important thing I want to reassure, I mean, let the results speaks for itself. See what's gonna happen over the next few months. You'll continue to see capital recycling. You'll continue to see new funds initiative being launched, and including in China, ability to launch new renminbi product. I think that's. Once you see those happening, I think you will be a lot more reassured. I mean, Like I said, the portfolio is extremely resilient. Many of the assets that we own are in good locations, and there are rental escalations embedded in, you know, most of the assets, whether it's in the REITs or the funds. You know, I mean, the balance sheet, it's extremely healthy.
Do look forward to, you know, just be patient in walking through the journey with us as we build the CLI business model. Yeah. Thank you.
Thank you. With that, we'll conclude today's briefing. Thank you for tuning in to our viewers online, and thank you to our analysts and members of the media for joining us here. We wish you a good day ahead.