Morning, everyone. Welcome to CLCT's 3Q update briefing. I am Siyu Yi, IR for CLCT, and with me today we have our CEO, Gerry; CFO, Joanne; CFO designate, Yan Lintong; Head of IPM, You Hong; and Nicole from the IR team. For this briefing, we will start with a brief presentation followed by a Q&A session. If you have a question, please use the Raise Hand feature and I will direct the time to you. With that, Gerry, please go ahead.
Hi. Good morning. Welcome everybody to CapitaLand China Trust business update for 3Q 2025. I am quite sure everyone here or you know been watching the U.S., China, President Trump and Chairman Xi's coming together in South Korea. That is actually a good way to get us started on this business update for CLCT. First, let me go to a snapshot of where we stand today. In terms of our asset allocation by percentage of GRI, our retail allocation is now at 69.9%, about 70%. That dropped from the first half, where it was 70.8%, about 1% drop was because we divested this CapitaMall Yuhuating through the C-REIT securitization exercise. As a result, of course, the other components slightly went up to 26.5% of GRI is in business parks, 3.6% in logistics parks. In terms of our distribution yield, it is now 6.2%.
Stock price came out a bit. That caused a compression in yields. That is also reflecting some of the overall S-REIT yield compression across the board. In terms of 3Q key highlights, I am very happy to again share that CLCT, together with our sponsor, we have listed the C-REIT CLCR on Shanghai Stock Exchange on September 29, 2025. That is China's first international sponsored retail C-REIT. It opened well. It opened trading at 19.6% above its IPO price of RMB 5.718 per unit. That is CLCR. For CLCT, of course, we seeded this C-REIT with our CapitaMall Yuhuating, and we also became a strategic investor through our 5% holding of units in CLCR. Overall, I would say that I think I mentioned before, the demand for C-REIT has been, I would say, very encouraging.
The IPO oversubscription is 254 x for institutional, retail 535 x. You can see that allocation wise, we have 20% with the originating or the strategic sponsor group, of which CLCT is one of them. We hold 5%. In terms of the current, at IPO the DPU yield for CLCR is 4.4%. Currently, it is already traded. Currently, the trading yield for CLCR is between 3.8%-3.9%. During 3Q, we also refinanced and issued 150 million of perpetuals. That was also very well subscribed, a 3.4x subscription coverage. Interestingly, we also had quite a big fund manager and insurance companies' allocation. About more than half of it was to institutional investors. So, we successfully completed our perpetuals refinancing through this exercise.
In the third quarter, we also attained and maintained our five-star rating for GRESB, where this is the third year where we have obtained our five-star rating. Very well done to our sustainability team there. In terms of results for third Q, you can see in terms of overall portfolio, our gross revenue came down by 8%. Our NPI also came down by 8%. If you consider on the same-store basis, excluding our divestment of Yuhuating, that number would be basically the gross revenues drop of 3.4% and NPI same-store basis dropped off 4.4%. Now, if you compare that to the first half for our overall revenue, excluding Yuhuating, the drop would have been - 4.7% in the first half. Sorry, let me take that back. Let me rephrase that.
For our retail revenue, it dropped for this third quarter - 1.8% without Yuhuating for retail revenue. If you compare to the first half on the same basis, it would have dropped 4.7% without Yuhuating. You can see that actually our retail revenue drop has narrowed. But for business parks, the revenue this quarter dropped by 9.1%, again, due to Singapore, Hangzhou Phase Two. If you compared to first half, the drop was about - 10%. Again, a slight narrowing of drop. In terms of logistics revenue, this quarter we went up by 13%, compared to first half, where it was increased by 2%. That was mainly due to the improved occupancy at Shanghai Fengxian. Let me add more color. Just now I talked about the retail revenue, and overall revenue drop from BPA as well.
If you look at our overall revenue this quarter, it dropped by about RMB 36 million, of which RMB 21 million came from the lost revenue from the divested Yuhuating. So that's about 58%. About RMB 10 million was from business parks due to the conditions that I have mentioned. So that's about 28% of that drop. And the rest came from what we have put here in terms of lower rents and occupancy at CapitaMall Xinnan and mini anchor tenant repositioning at Rock Square. For the Rock Square mini anchor repositioning, we have basically had a tenant open on October 1st. So that would go away in fourth Q. That space will start contributing, and that tenant is Decathlon at Rock Square. And the new tenant, Decathlon, has saw good traffic and started contributing to Rock Square's numbers from October onwards.
In terms of NPI, I mentioned - 8.5% overall year-on-year. Again, very much due to the divested Yuhuating's NPI loss. So, on the same store basis, we see - 4.4%, and of course, there are some other factors due to the overall drop in gross revenue from other asset class, other assets like the business parks and some of the asset like CapitaMall Xinnan. On the other hand, it's partially offset by our cost reduction efforts of about 1.3% year-on-year on same store basis. The next slide, we take a look at some of the retail metrics. If you look at shopper traffic and tenant sales, third Q compared to first half or nine months for the year, you would see that third Q actually, both on shopper traffic and tenant sales, have done quite well comparatively speaking. Third Q year-on-year increase in shopper traffic is 4.5%.
Tenant sales, third Q increase is 3.2%. One of the factors, I would say, is that some of the key sectors continue to do well. We also had the effect of better Golden Week holidays in 2025 than 2024. For the key trade types, if you look at F&B, we are +5.1% for year-on-year on a nine-month basis. InfoTech, +12.8%. Toys and hobbies, again, very strong momentum +56%, and jewelry and watches, 60.6%. These key sectors continue to do well, whereas maybe some of, I mentioned before, some of the weaker ones, weaker categories like fashion and beauty and health continue to have single digits drop in sales year-on-year. In terms of AEI, we have seen the contribution from CapitaMall Xuefu and some contribution from Wangjing, which I will talk about later.
Again, in this slide, we just wanted to highlight one of the key growth drivers for third Q, which is CapitaMall Xuefu's AEI. That added 20.8% to our shopper traffic for that mall and a 24% increase in terms of tenant sales in that quarter. Occupancy costs continue to maintain at about 17.7%. That is quite stable below pre-COVID levels. In terms of China's Golden Week, we saw, as I mentioned earlier, a better Golden Week than last year. So we had a 4.6% year-on-year increase in traffic and about 4% increase in total sales versus the last comparative period for Golden Week last year. If you look at retail occupancy, we have a slight bump in this quarter. Some of our strong malls, Xizhimen, Rock Square, Xuefu, Nuohemule, basically are fully leased, and that has helped to bring up the retail portfolio occupancy.
There is continuous positioning for CapitaMall Xinnan, which you can see the occupancy dropped slightly. We are trying to work hard to pivot that mall to a new concept where we focus more on the IP and the anime, and to cater to the younger generation. So what we call an ACG, right? And we are seeing some progress there. But in the interim, there will be some bumps in the occupancy. In terms of retail reversion, we see that we now have a retail reversion for nine months of -1.5%, and this has narrowed from first half where we reported about -3%. Some of the stronger reversions we see are from, again, the strong categories I spoke about, F&B, IT, toys and gifts. Again, the weaker reversions are from fashion and beauty and health. So that is basically for retail.
For business parks, our overall occupancy dropped by 86.9% to 85.2%. I will explain shortly why that has happened. Our Ascendas Xinsu Portfolio has been relatively stable. There was a small drop due to one tenant, basically giving up the space, but we are looking to fill them. The AIT asset in Xi'an, that asset has started to basically fill the space that was vacated by one of our big tenants that left one year ago. Currently now we have brought it from 74.6% - 75.4%. We are making quite good progress, and by the end of December, we are looking for occupancy of mid-80s. So, we have some tenants already lined up. So, they will come in progressively, and we hope that by end of December, we will be able to push it up to the mid-80s. Ascendas Innovation Hub continue to be at the mid-80s levels.
There was some drop, but we will try to fill in those tenants as well. For Hangzhou, phase one had a small increase, and phase two, where we had previously shared that we have basically taken over some service office tenant space that was at about 25,000 sq m. In the third quarter, we had another service office space, which, when we reviewed our tenant portfolio for phase two, we found that we wanted to proactively take over that service office tenant to basically start to convert them into spaces that we can control directly. There was, of course, learning from the earlier exercise where we took over the space from the service office operator. We thought that it may be better that we take it over earlier, so that the transition, if the service office operator dropped off, would be easier. That was what we did in third Q.
You could see that that caused a temporal reduction in occupancy from 79.7% to 70.7%. Because the service office was about 29,000 sq m, and when we take it back, we directly sign leases with the subtenants, of which about 60% over of that space was leased. That caused basically a change from a master lease of 100% to about 60% of the space being in our books being leased. But we are working hard on this, and we hope to repeat the success that we have with the other service office operator that we took in. In all, from the last round we took, plus this round, we took back about, I would say about more than 50,000 sq m of space. We now have already leased out about 67% of that space.
In the fourth Q, I think we should be able to push that phase two occupancy closer to what we saw in June 2025 of the high 70s market. For the business park reversion, for first half, it was - 8%. For nine months, including the third Q, it is - 8.9%. For business park, we continue to deploy renter incentive as a key tactic to maintain our occupancy as well as preserve our asset value in quite a challenging market in some of the business park assets. Overall, you can see that our business parks, in terms of occupancy, continue to outperform the sub-market. Xinsu in Suzhou, of course, outperformed by quite significantly, about 30%.
For the Xi'an portfolio, AIT and AIH, are currently it is slightly below sub-market, but with the committed tenants that have signed on in October, our AIT and AIH as a cluster would have a 83.9% occupancy that would have outperformed the sub-market. As I was mentioning, in fourth quarter, we should see even more, and that should push up the whole Xi'an cluster above 83.9% in terms of occupancy. Hangzhou at 73%, it is also outperforming the Hangzhou sub-market. And we should, as I mentioned in fourth quarter, continue to see improvements in our Hangzhou overall business park occupancy. In terms of logistics, we are quite stable. Same occupancy as June 25, 96.6%. The liquidity reversion that you see there basically is due to one of our renewals of a strategic anchor tenant at Wuhan, which was already previously reported.
I will let Joanne take the capital management part before I close off.
Okay. On our financial position for this quarter, as you can see, the total debt has actually reduced from RMB 1.8 billion -RMB 1.6 billion. This is also actually because of the temporal use of the proceeds from the perpetual that we issued in September. That also actually brings down our gearing to 38.8%, as you can see. But we have actually redeemed the perpetual out there, I think, two days ago. If we actually include that additional perks that we have used our loans to redeem, that gearing would have been 41.3%. On the average cost of debt, in this quarter, it has actually improved from 3.42% to 3.36%.
I think this is actually the labor of the fruits that we have actually earlier on issued [SNH bonds] and also all the initiatives that we have actually rolled out, that at that point in time, SNH interest was actually lower, and we actually benefited, and that can be seen from the cost of debt here this quarter. Our ICR is at 2.9x , and average debt to maturity is 3.4 years. In terms of the ICR sensitivity, as you can see on the right table, on 100 basis point interest rates movement, our ICR is still at 2.3 level, which is a healthy level. Same goes for the sensitivity of the EBITDA. A 10% decrease on the EBITDA, my ICR is still at 2.6 x.
That is way above the requirement by MAS of the 1.8 x where we need to actually explain and put out some explanation to that. We also have a sensitivity in terms of the gearing. On a 1% movement of the Singapore to the renminbi, our gearing will move about 0.27%. I think this is something that we actually put out on the debt maturity profile. As you can see for 2025, we are actually pretty done. There is nothing that is due for refinancing for 2025. In fact, I think the team has actually proactively looked out to actually extend our loans and have actually worked on the 2026 tower. SGD 120 million, which was actually a Singapore dollar debt will be refined to a renminbi debt.
I think we are working towards what we have actually communicated to the investors that by end of this year, we are actually targeting our renminbi debt as a total percentage of our total debt to be at least 50%. As of September 30th, we are actually reporting a 45%. I think by end of the year, we will definitely be more than 50% as what we have actually targeted to achieve. As a percentage of total fixed to floating, we are at 80% fixed this quarter. This level is at this level because, again, for the temporal perpetual that we used the proceeds to actually pay down floating debt. I think this percentage, you will see that this fixed percentage will come up a little bit to actually benefit from the lower SORA that we're seeing right now in the current interest rate environment.
I think in terms of the debt funding mix, we are pretty well-mixed. We've introduced our renminbi bond. We also have done FCZ bond and also increased our onshore renminbi loans percentage. I think that's a little bit color of the debt maturity profile and the capital management. Handing back to Gerry to actually-
Okay. Thanks, Joanne. Looking forward to the fourth Q, to the end of the year. Some of the things that our stakeholders can look forward to. In terms of our AEIs, for CapitaMall Wangjing, where we transform a large supermarket area into a higher yielding retail space overall. We have successfully leased 100% of the AEI area. Achieving an ROI of 12.6%. Very well done AEI, and achieving a very good return on our investment and CapEx in this area. Currently now on 1st October, in fact, we are ahead of schedule. We were actually initially thinking that we would be only able to open the space in November. But now we have managed to basically open it in October 1st. About 14 out of 27 tenants have opened, including 7Fresh, which also when they opened, did very well.
The remaining shops will open progressively throughout October and November. Our AEI area was opened right before the Golden Week period. So that has really helped to increase the shopper traffic and tenant sales at CapitaMall Wangjing. In terms of the Golden Week performance, you can see there our shopper traffic went up by 13%, tenant sales went up by 21%. The supermarket itself really outperforms in terms of per square foot sales versus the previous supermarket at 177 x. So very efficient use of space and very good sales. So, I would say that we are looking very good in terms of this AEI. In terms of CapitaMall Xuefu, I think last, first half, we shared already about it. For our animation, comics, and games street, besides the supermarket that has opened, now the games street, ACG street, has now opened.
This 2,105 sq m NLA where we transformed it. Previously, again, it was part of the original supermarket. We took it back and then now transformed into a theme street. It is 100% occupied next to our Beauty Supermarket, which opened in June. This street now has 13 brands, nine of which are introduced to the whole CapitaMall for the first time. These are some of the popular ACG brands, where we are trying to basically build an area which leverage and which would basically be able to attract more IP merchandising type of tenants into the space, and which would attract also a different demographic, a younger consumer demographic, the Gen Z demographic, who are really into IP merchandising and the offerings that we are putting into this street.
If you look at the first month since the street has opened, the shopper traffic has increased by 18% year-on-year. Total rental increase that we have achieved here for this Xuefu AEI is 13.1%. In terms of how we are creating value through our strategy, we have already achieved entering the C-REIT market this year by listing CapitaLand Commercial C-REIT and becoming a key stakeholder. That gives our unitholders access to the China domestic capital market. In fact, we are proud to say that we are the only S-REIT or perhaps the only REIT in Asia Pac that would be able to allow our unitholders access to the C-REIT market. In terms of unlocking value, we have recycled CapitaMall Yuhuating. We divested Yuhuating through C-REIT securitization at a premium. Basically, it was 8.8% premium to our announced floor price.
It was also a 4% premium above Yuhuating's 2024 valuation. This, I would say, is a very good outcome. In terms of exit NPI, it was at a very competitive, very attractive 6.2% NPI that we have exited at for basically a tier two city asset. This really shows how we can effectively take an asset like Yuhuating, even though it is a tier two city asset, add value to it over time. We bought it maybe about five years ago and then be able to recycle that asset into a C-REIT, exiting at a premium, at a good deal, and then bringing back money and then being able to then find good new ways to redeploy that capital.
This S-REIT C-REIT connection, I think in the months ahead and the next year, we will try to continue to exploit our unique advantage there, continue to see whether we have more opportunities to do such activities. In terms of extracting value, we continue to look at our AEIs as important way to drive some organic growth. We have already announced Wangjing and Xuefu's successful completion. The next one up is Xizhimen, which we are looking forward to completion in fourth Q. Currently, the AEI work is going well. The tenant is doing AEI work, which is basically 89% completed. We are now looking forward to them getting approvals to open. Hopefully, by the time we get to fourth Q, we will be able to give you some good news and also some snapshot of how it is looking like.
In terms of capital management, we have been very proactive at that. We told our stakeholders and unitholders that we want to aim for 50% of debt being renminbi-denominated debt so that we basically have a better currency mix and asset liability matching in terms of our renminbi exposure. We have basically achieved that. By the end of December, I think you would have seen that we have made very big efforts and have successfully outperformed this 50% market. With that, maybe I pass back over to Siyu Yi to take new questions.
Okay, thank you, Gerry, for your presentation. Now let's proceed to the Q&A segment. We have the first question from Derrick. I'll pass the time to you. Please go ahead.
Hi, good morning. Thank you. Can you hear me?
Okay.
Hi, Gerry and team. I just wanted to ask a few questions. Firstly, I'll start with retail. I mean, your numbers, sales and traffic looks pretty okay, but your reversions are still negative. I was just wondering whether when should we see that turn coming in, and could you have a guidance for that? Maybe that's the first one. Yep.
Yeah. I think I previously shared, in terms of reversion, quarter to quarter, we are seeing +3, -3 sort of range. This quarter was a better quarter, where we had good reversions from some of the stronger trade cats. We basically improved on the first half. But first half, I think I mentioned before, we had a mini anchor repositioning Decathlon at Rock Square that basically brought down reversion a bit. And also we were transiting from some of the higher rental EV tenants in some of our malls. Some of them have basically consolidated, right? We have to replace them with different trade cat. That affected the reversion in the first half.
Going forward, now that we have basically worked that out, our reversions will probably look at in that type range of, I think flat to maybe slightly negative like what we are seeing currently.
Sorry. You are still looking at flat to negative? That is the guidance still at this point.
Yes, I think at this moment, the balance is such that there are some trade cats that are doing well.
Hmm.
That's contributing positive reversions. There are also other trade cats that are doing not as well, which I've mentioned before, fashion and beauty and health. Overall, as you can see, sales and traffic are doing well, but we are still in an environment where in terms of expanding space are being cautious, right? It's also quite difficult for some of the trade cats, to ask them for rental increase.
Yeah. Maybe just to add another perspective, I think our stronger malls are actually doing okay, do register generally flat to slight positive that we would wanted. There are also malls that have been going through repositioning, take on board Xinnan, [item and tune]. I think we still continue to see a bit of adjustment there. That's why you see as a whole, we remain cautious. The other perspective is that, I think, you probably are also aware that take example, when people go to spend the capital spending tend to be more on the downside. I think the tenants are also aware of that because they actually do give a lot of the sales promotions and all that. While sales is actually on the healthy trend, I think their profit margins are also still having a bit of pressure.
I think in negotiating with the landlord on the rental, we continue to be cautious in terms of how they actually expand. I mean, we hope things will be better next year, but I think at this moment, we feel we want to be guiding a bit cautious tone. Yeah.
Sure. No problem. I just want to, as an observation, I'm not sure that that's the right kind of comparison, but if you compare to your peers, right? For example, people like MixC is doing pretty okay. I'm just wondering whether it's a function of the tenants or the trade cat or just maybe the positioning in the retail sector. Just wondering your thoughts on that.
Maybe, we cannot speak as a whole, but when we actually visited some of the MixC's properties and based on the conversation that we had. I would say some of the malls were opened in the more recent times, and their strategy would have been starting from a low base, get the mall filled up, and then as business continues, then rents up. I think there are certainly some effects from there. In fact, when we compare some of the malls that we are in our portfolio and similar locations, our rents are actually not lower. So, from that point of view, there is a bit of a catch-up in the rent, I feel, from those newly opened malls.
Got it. Thanks for the color. Last one for retail. Your op cost, do you have an example, [Sam] ?
Yes.
Yeah.
I think we have op cost. It is still about-
17.
-high 17s.
Yeah.
To about 18.
Okay. Got it.
Pretty healthy.
Yeah. Pretty healthy.
Okay. Got it. Last one from me from your business park and logistics, right? I noticed that we saw dip in reversions, but also occupancy is a bit soft, selected assets. I know Gerry, you mentioned you took back some space and you managed to work on it yourself. You look at, say, going forward, reversions, negative, which is the one that would move into a positive territory first? So, occupancy first or reversions?
Occupancy.
It will be a focus on occupancy going to a certain level before you start to be a bit more strict on rents.
Yes. I think clearly for the business park sector, I think everyone is almost in the same direction. Us, Keppel, as well as other competitors.
Right.
Everyone is focusing on occupancy. Just now I mentioned for our Xi'an cluster, AIT and AIH. With some of the committed occupancy that we have in October, as a group, as a CLCT group, it is now about 84%. We have brought it up in terms of committed occupancy. But we will continue to bring it up, hopefully to the high 80s by end of December. For Hangzhou, it is the same thing. Currently, maybe as a group it is about low 70s. But by end of December, as we work through those service office return space that we are working on directly, we should be able to bring it up. Hopefully, be able to bring it up to the high 70s.
Okay. Got it. Thank you. And thank you very much. That is all for me. I will go to the back of queue.
No problem.
Thank you, Derrick. We have the next question from Ada. Please go ahead.
Hi, Gerry. Thanks a lot for the presentation. A couple of questions for me, a bit more in terms of the divestment proceed from CapitaMall Yuhuating. I am just wondering, what are your thoughts on conducting a unit buyback at this juncture versus paring down debt?
Okay. Currently, whatever proceeds that we bring back, the likelihood is that immediately, we will probably use it to temporarily pare down our debt first, because that is the fastest way to use the proceeds. Joanne can share a little bit more about timing and all that later. But in terms of the midterm plan, in terms of how to make use of, obviously, after you pay down debt, we have a slightly better gearing headroom. I am still looking at it together with the team. One of the options, of course, like you mentioned, is a unit buyback plan. Today, as you can see earlier in our slide, our trading is about 6+% . Maybe give it, in first Q to second Q, it was 8%.
Hmm.
If you ask me when it was first Q to second Q, 8%, there was a very strong, of course, rationale to do the unit buyback. Now it is about 6%. It is still, I would say, maybe an opportunity, but I think now we have to weigh against maybe other opportunities that may come up. And I have mentioned before the fact that I want to look at ways to continue to exploit the S-REIT and C-REIT connection that we have now. I believe that we are in a position where we can now actually go and look in the market, specifically at retail assets. As you can tell, because we have sold the Yuhuating asset, we lost some income.
Hmm.
If we can find a solid asset that basically has long-term value, and at yields that are higher than our trading yield, and also higher than the asset that we have divested. That becomes maybe another option for us to basically use our gearing headroom. We could deploy into such a retail asset. And then, of course, continuing in the long term to have a pipeline of good retail asset, which when their value have peaked, we can then rotate them and securitize them into C-REIT. So that is what we are thinking through now.
In fact, what we are looking at the market right now to see whether there are such opportunities. We give ourselves about maybe six to nine months to go through the exercise. And we will come back to unitholders when we have made that decision. But certainly, unit buyback is still on the table if we cannot find better use of the money.
Got it. That is very clear. Thanks a lot. I guess on a kind of tangential note, given that we have potentially kind of lower gearing and still that CNY 107 million worth of offshore CNY debt that is coming due next year, where do you see your cost of debt trending in FY 2026?
Joanne, you can take that.
Yeah. Okay. For us, I think like I mentioned earlier on, we already actually have seen our cost of debt improving for this year versus last year. I think it is also because of the asset that we have actually more renminbi going on our book. So going forward, I think if this continues as you mentioned, where we are actually also embarking that at least 50% of our books are on renminbi debt. We see that the average cost of debt would actually hovers around this level. Yeah. So, what I want to say is that actually we have already benefited from the lower cost of debt beginning of this year already.
Okay, got it. Just one last question from me, a bit more of a stupid question, but back in first half 2025, we actually retained about SGD 1.8 million that was contributed by CapitaMall Yuhuating in terms of distributions. So, I am assuming that all of this will kind of be returned to the REIT to form the second half DPU, and also given the cut over date of September 29 for CLCT, should we still expect any contributions from the asset for the second half DPU?
Yeah. You are correct. In one half, we assume retained 2Q Yuhuating contribution. At that point in time, we were actually not very clear in terms of the regulation on what is the cutoff date of this transaction. But following on the IPO of this asset in CLCR, the initial date or rather the cutoff date has actually been confirmed that it will be on March 31st. Having said that, it means that we will not be able to actually have Yuhuating's contribution starting from April 1 onwards. In other words, for the 2Q retention of Yuhuating will not be released back to unitholders, and at the same time as what we have also shared in terms of our operation numbers, 3Q Yuhuating is also not inside the NPI where we actually presented. Yeah.
Okay, understand. Thanks a lot. I will come back to the queue.
Okay.
Thank you, Ada. We have the next question from Hong Wei. Go ahead.
Oh, hello. Thank you. This is Hong Wei from OCBC. Just have three questions. My first question is on the tenant retention. I see that for retail, for example, the renewed leases is actually less than half of those. Just wondering how sticky are the tenants and are these tenants churning in and out quite rapidly. That is my first question. And the second one is that there is certain trade categories that really boom a lot in tenant sales. I think that also contributed to some of these tenant sales figures being supportive. Is this something that is sustainable or do you think this will come off? And closely related to this tenant sales question is, I mean, just now talk about occupancy costs.
It has come down to a level where you mentioned is healthy, but I think Derek also mentioned to us about the negative rental reversion. Just wondering, is 17.7% something that is going to be where you will stabilize at or do you think it will go up or down from here? That is my second question. My third question is that Yuhuating has been divested. I think now GRI, about 70% coming from retail. A couple of years ago, there was a roadmap to reduce retail down to 30%. I mean, obviously a lot of things have changed since then. Is there a kind of a refresh target or roadmap? That is my third question.
I think the first two questions You Hong can take. I can take the third question in terms of strategy, I think.
On the trade cat sales, I think of course different trades behave slightly differently. In terms of F&B, we actually continue to see good traction and I think there are interesting brands that is coming up. On the retention side, in fact, that also from our experience, I think for a retail mall, refreshing 50%-60% of the area brand is quite common. If not, I think we also would run a risk of at times our shoppers getting a bit tired of the same color. I think that churn we are not too worried about. Indeed, it is what kind of a tenant they are bringing in, what kind of tenant that goes out, it is more of a question to us. I have mentioned about the F&B.
In terms of toys and hobbies, this traditionally is not a big trade category, but benefited from the likes of Pop Mart and a few other names. It did actually give us a very good sales momentum. So far, we see that trend is still continuing. IT side, I think the first half indeed benefited quite a bit from the so-called government's incentive, the trading program. I think there is that benefit, and Q3 we are seeing slightly tapering down a bit. What we believe on the ground is that the trading program and then the incentives are still ongoing. But I think perhaps the quotas, the timing, the voucher that is given, as well as the fact that the novelty some of the people would have already done their big shopping in the first half.
Q3, the effect will not be as big, but still on year-on-year basis it will increment. Jewelry and sales we still see increase. I think if you ask me whether the sales momentum will continue to grow, I think it is still a healthy recovery, and some of the rotational trade CapEx will still continue. That is the trade CapEx sales retention question. On the op cost, from what we see, I think this is generally. I mean, op cost is a function of rent and sales. From that point of view, op cost will probably stabilize at this stage, and then may churn out a bit if our sales continue to grow. But I think that probably will set a good momentum when I think the tenants are actually really feeling the confidence coming back, and for us to actually engage them in a positive rental cycle negotiation.
But like I mentioned, that hopefully will happen sooner than later in next year.
Okay. On the question of strategy and asset allocation, currently we are about 70+% retail. As you have noted, many things have changed versus a couple of years ago. The new economy sector, of course, have been in quite a turbulent time, relatively speaking, compared to our retail, which are a very defensive asset class. On top of that, we have successfully listed a new recycling vehicle, a securitizing vehicle, through the C-REIT. In our view, we want to revolve our strategy now towards this competitive and strategic advantage that we have in terms of the retail value chain. Right? I see ourselves focusing more on the retail side of the business rather than, say, growing the new economy side of the business, in terms of asset allocation.
Okay. Thanks a lot for answering my three questions in depth.
Okay, thank you, Hong Wei. We have the next question from Yu Kiam . Please go ahead.
Hi, Gerry. Just a very quick one. You mentioned you want to look at China, maybe potentially for acquisitions again. Can you give us some color on what's happening on the ground? Are there distressed deals, and what's the kind of fabrics for retail in the market right now? Thanks.
Okay. I'll maybe introduce this shortly, but I'll let You Hong take that question because he looks at it from an investment point of view. But indeed, I would say that we are just starting to scan the market more actively. We haven't bought a retail mall for some time. But from our perspective, this asset has been a very defensive asset on our portfolio. And particularly, retail malls that are more mid-market, have good traffic connections, in dense residential catchment, those are the ones that in our portfolio have done well, and we want to add such assets into our portfolio, if we can find them. I will let You Hong take maybe the current market conditions.
Yeah. I think the market has been, I would say, still investment market, relatively soft between institutions. The transaction volumes, I think have not really cut that much, especially in the retail scene. Traditionally, it was not a very big market, and then it requires a lot of operation capabilities. The C-REIT market has been actually active and then yielding very attractive, I would say, valuations in the assets that we have traded. It's giving us at about 6% exit cap that we hope to achieve. For first year, I think it will be one notch lower, close to the 5%. Whereas in the capital market side, I think things are a bit different. When I say capital market, it's more the-
Physical.
-physical institute, the en bloc sales market. I think generally capital people, the bid-offer spread are still large. I think any buyer are still asking higher than what I spoken about in terms of at least one to two percentage or 100 basis points-200 basis points. I think this is where things are and we are still at early days, so we hope to come back to you.
Like what You Hong say, I think I summarize that liquidity is keen in the en bloc market. That's across asset class, not only retail, but retail because needs expertise, tend to be blocky, chunky in terms of size. So that increase the level of market dislocation that we are seeing. And because now with our, I would say, superior conditions for investing in such asset, we are backed by our sponsor and our operator who have had retail expertise for 30 years in China. We have proven track record of value-adding to retail assets, and we now have the ability to recycle older assets into a C-REIT. Helping us to achieve liquidity when we need them. We feel pretty good about trying to find opportunities under this environment of market dislocation, and particularly we want to focus on retail.
Thanks.
Thank you, Yu Kiam. We have another question from Derrick. Please go ahead.
Hi. Good morning. Morning, Gerry. I just wanted to have a follow-up on the questions. You have done the C-REIT, which was a great recycling avenue for the trust. But going forward, is that the only one that you think is most viable at this point in time? And thinking about, let's say, you also looking at acquisitions. My own thoughts are that you're gearing at 38%, the debt capacity is not a lot also. I am just wondering whether, how should we think about your capital and the size of the deals that you potentially could look at? Yeah, just these two. Thanks.
I think you are referring to whether Yuhuating is the only one that could actually be interested in the C-REIT. Is that correct?
I think one last time they can buy more from you, but I am just wondering whether at this point in time, is this the only avenue that you think is open for you for now? I am just curious.
In terms of [inaudible]
Mm-hmm.
I think this would be a key way that we want to utilize, though it is not the only way. You Hong can share. There are third-party avenues. But generally speaking, I think valuations for the right assets, probably you can achieve better valuations through the C-REIT securitization. Of course, not everyone can basically securitize through. As you know, it is not easy to list a C-REIT, and we are the only basically foreign sponsor to have at least a retail C-REIT on A-share. So, we have the advantage. So of course, we want to make use of that advantage. So that is one. Two, I think your question of the balance sheet. Of course, we divested Yuhuating. Clearly, that sort of bite size of about RMB 1 billion of asset is clearly something that would be interesting, and that would replace the Yuhuating asset size.
If we require, if we find a really fine asset, for example, that is bigger, I do not know, say RMB 2 billion. We may have other ways to raise funds. As I said, we are continually looking at targets where we can recycle some capital. Of course, the C-REIT is one avenue that I did mention that I want to continue to utilize that channel to basically get capital when I need it. So there are, in fact, something that You Hong is actively looking at. You Hong, you want to add anything else?
Yeah. In terms of the divestment channels, I think we have in the past been able to divest assets to the various local institutions. So, I would say that some look for income. Some look for alternative use. So, at this market, like what Gerry alluded to, I think the liquidity is relatively thin. So, on the alternative use, I think we are seeing buyers being generally more cautious. Where if they are looking for income, I think, again, in this market where the bid offer spread is still a bit wide, I still think probably C-REIT is the best option for us. Yep.
Okay. Got it. So, another one for me, if you think about, let us say, your capital sources that you want to tap. So, I would presume that you would look at the investments first, followed by their capacity, perks, then equity. So, is equity something that you think you want to tap at the right opportunity?
It's not something that we can speculate by whole.
Okay.
I think end of the day; it's the quality of the asset that we are looking at. Whether on a stabilized basis, that asset that we eventually find can justify the use of capital. I think that's the starting point. If we don't find a good asset that meets all these criteria, then obviously, we won't force it.
Got it. Okay. No problem. Thanks for that. Thank you for your insights.
Thanks, Derrick. Yu Kiam, I don't know if you still have another question.
No, sorry.
Okay. Are there other questions from the floor? Okay, since there are no questions, this concludes our session for today. Thank you everyone for joining, and please feel free to reach out to me or my team if you have any further questions. Thank you all and have a great day.