Hi, good morning, everyone. Welcome to CapitaLand China Trust 2Q 2025 results call. I am Nicole, IR for CLCT. I have with me today Gerry, CEO, and Joanne, CFO. Thank you all for joining us today. We will start off with a brief presentation, followed by a Q&A session. Once the presentation concludes, we will open the floor to questions. If you have a question, please use the raise hand feature, and I will pass the time onto you. I would like to hand over the time to Gerry. Gerry, please.
Thank you, Nicole. Before I share more about first half results, I would like to update everybody the happy news that we have received unitholders' approval yesterday for the proposed participation in the new CLCR. There was strong support at AGM. We had a 99.5% approval rate, which demonstrated that unitholders recognize the strategic value of CLCT participating in this platform. Currently, we have 18 properties across 12 cities, nine retail malls, five business parks and four logistics parks. Assuming we transact CapitaMall Yuhuating through this series, we will have eight retail malls. In terms of asset allocation, retail continues to be our largest, currently at 71% gross rental income, followed by BP at 26%, logistics of 3%. Retail, of course, is resilient, have consistently been above 90% occupancy.
BP and logistics, they are aligned with China's new growth priorities, but they have been weaker in this cycle. After the CapitaMall Yuhuating divestment, retail, in terms of GRI, will come down slightly just below 70% GRI. In terms of AUM, though, retail will fall from 76% to 75%. So still, we are very much predominantly retail. In terms of our trading yield, just to update, we benefited from positive unit price movement last quarter. So we are now trading at about 6.6% trading yield on a trailing 12-month DPU basis versus 1 Q where we were at 8%. So at 6.6%, we are still about 4% spread over government bond yields. First half results, I would say that overall business conditions have been soft.
Among the three sectors, retail had relative resilience, logistics occupancy stabilized amidst rent resets, and our business parks trend of weaker demand continues. Retail has been affected by the continued repositioning at our weaker mall, CapitaMall Xinnan, general weaker overall regressions and occupancy. The supermarket upgrading that we are doing for three of our malls also affected our income by about CNY 8 million this half. But the completion of those supermarket upgrading, those AEIs, that would start to contribute to us by year end. For business park, that suffered the most in first half with lower occupancies in Hangzhou and Xi'an affected. For Singapore-Hangzhou Science & Technology Park Phase II , we were affected by pretermination of a service office tenant, which took up about 20% of the NLA of Singapore-Hangzhou Science & Technology Park Phase II.
For AIT as well, as we are also continue to backfill the vacancy created by a large tenant relocation a year ago. So 1Q 2025 for BP was the lowest point in terms of occupancy. It was 83.7%, but we have since bounced back at end of first half to about 86.9%. For logistics, generally improved as we had improved occupancy in Kunshan and the whole logistics portfolio versus a year ago. Under those conditions, our overall portfolio first half gross revenue dropped by 6.3% year on year, and NPI dropped by 8.1% year on year. Excluding the Singapore-Hangzhou Science & Technology Park Phase II service office tenant effect and the supermarket upgrading that we're doing, gross revenue would have dropped by 5% year on year, and NPI would have dropped by about also 5% year on year.
Also to note, excluding those impact, that one off impact that I spoke about, the service office and the supermarket upgrading, first half 2025 NPI would have been comparable to second half 2024. In terms of DPU for first half 2025 is SGD 0.0249 . W e have retained the distributable income attributed by CapitaMall Yuhuating for Q2 due to the intending series IPO. Excluding that effect, first half 2025 DPU would have been SGD 0.0259 , which is close to second half 2024 DPU of SGD 0.0264. If you look at the role from period to period, you could tell that our DPU, in terms of the downward trend, have narrowed from first half 2024 to second half 2024, and then now first half 2025.
Key milestones for first half, I've already mentioned we have obtained unitholders' approval for our proposed participation in CLCR. The other thing that we have been working hard on is capital management. In April, we have announced the successful issuance of a CNY 600 million CNH bond, and that's at the attractive rate of 2.88%. We are continuing to work on reducing our cost of debt. In terms of our average cost of debt, in the first half, we have cut it by 9 basis points. Joanne will cover that in more detail later. In terms of our percentage of renminbi debt nomination, we are now at 41% at first half. But we are doing more work on it.
In fact, we are in advanced negotiation with banks to refinance some of our SGD denominated loans with renminbi debt, and therefore we are quite confident that we'll be on track to reach this 50% target that we have set for this year. And potentially, we could outperform that target. Finally, we have also improved in terms of our sustainability targets, where we obtained LEED Gold for the R&D blocks of Ascendas Xinsu portfolio. And in terms of our green certification, we have improved on it. Now we are at about 68% versus in December, we were 60%. And we have also increased our sustainability loans to 51%. Our retail operational data continue to show resilience. Retail sales trend have been growing. If you look at first half, shopper traffic, it grew by 1%. If you look at our tenant sales, it grew by 0.1%.
You will know that we are doing some supermarket upgrading, which caused the closure of three supermarkets across our malls. If you strip that effect out, we would have actually tenant sales would have actually grew 2.5%. One of the key things in the first half was, of course, the May Day holidays. That has been a strong factor during that month, sales actually grew 5%. That has been a bright spot, in terms of sales growth across the mall. In terms of key trade cat, our popular trade cat that has been growing, has continued to lead the growth of our tenant sales. If you look at F&B, which is a big portion of our trade mix, now it's at 39%. That continues to grow at +4.3% as we also continue to grow our F&B trade mix. The other category is IT.
Strong growth, +17.8%. That, of course, has boost from consumption vouchers that continue to play a factor in increasing Chinese consumers' buying of gadgets and appliances. Toys and hobbies grew at a very, very high rate of 46%. Again, very much catching on to the Pop Mart strong momentum, and that's indicative of continuing rise in popularity of collectible toy market. Finally, jewelry and watches. That is +18%. Sales increased predominantly from established brands in Beijing. Again, the popularity of investment in gold continue to be strong among Chinese consumers. In terms of occupancy cost, we are at a healthy level of 17.7%. If you look back in history, you know that clearly show that we are actually below historical levels, below pre-COVID-19 levels. For retail, I mentioned that we have been relatively resilient. Having said that, there has been a slight drop in terms of overall occupancy.
In first quarter, we were 97.7%. Now we are 96.9%. Some of these occupancy points lost are transitionary vacancies, but we expect to fill them in the next quarter. For example, CapitaMall Xizhimen and CapitaMall Grand Canyon, we have already signed leases in July, and their occupancy will be back close to 99% if we include those replacement tenants that we have signed in July. CapitaMall Xinnan continues to reposition. The team will be working hard to push the occupancy, which is now below 90%, back to 90% by 3 Q and 4 Q this year. In terms of the reversion, it's slightly wider negative reversion. That's currently the reversion for first half is -2.7%. That's driven by some of the actions that are happening in the portfolio, including there was a mini anchor repositioning at Rock Square.
Basically, we are bringing a strong mini anchor to improve the overall circulation as well as draw at that area that we are bringing the anchor. There has been also a trade mix shift for our high rental vehicle tenants. Some of the EV tenants are consolidating. Because they usually pay very high rent, so we would have to replace them with other tenants. Also rental support for F&B tenants during the B1 renovation in CapitaMall Wangjing. Business parks. Although the business park sector has been challenging, we managed to bounce back from the 1 Q lows of 83.7% to 86.9% with more competitive pricing on rents. As a result, rental reversion is at -8%. This is compared to end of last year, where we were about -4.5%. We certainly had to offer more competitive pricing in order to push up the occupancy.
There are some silver linings in BP. For example, Xinsu improved its occupancy by attracting a major U.S. tooling and engineering tenant. That's an MNC. In Hangzhou, too, where we lost a large service office tenant, what we have done is we have worked hard to backfill that space. That space was about 20% of Singapore-Hangzhou Science Technology Park Phase II . In Q1, we backfilled it to 45%. In the first half of this year, we have already backfilled it to 72%, with some positive rental reversions. That's something that we continue to work hard at to see whether we can backfill the remaining as soon as possible. We continue to do better or on par as compared to our competitors in our BP submarkets.
If you look at the submarket occupancies as a whole, they have generally declined, but our own portfolio's BP occupancy has generally improved or held firm. Logistics was also an improvement in occupancy. Shanghai Fengxian has started to collect rentals in July after tenant renovation is completed. Chengdu has also improved occupancy from last quarter. We did do an early renewal of an anchor tenant in Wuhan, and that one lease contributed to the negative reversion that you see here on the slide of -24.7%. Overall, our portfolio occupancy across the three asset segments has actually improved this in the first half to 91.6% from Q1, which was about 90%. Here, just to recap, our distribution for the first half is SGD 0.0249. Next, I will pass it over to Joanne to talk a little bit about capital management efforts.
Hi. Good morning. If you look at this, technically for gearing, we maintain our gearing at about 42%. I think despite the volatility in terms of the renminbi, as we saw weakening against the dollar, we still maintain our gearing of 42%, largely because of our effort to try to bring back more cash from China, but via the usual route that we usually do, which is through the distributed dividend payment. With that actually helps to maintain our gearing. Because of that, I think Gerry touched on a little bit, I think we managed to save some interest, and because of that has actually reduced by close to 10 basis points. Lastly, coming from a few fronts, I think those efforts that we've done in terms of the renminbi issuances and that one has actually come to fruition.
We see that saving, and also at the same time, the LPR has also dropped, and also because of SORA easing off, these are all the factors that result in cost of debt lowering. ICR remains healthy at 2.9 x. The average term to maturity is 3.6 years. I think as required by MAS, we also have a table that shows the sensitivity with regards to any movement in terms of interest rates as well as the EBITDA. I think with that, ICR still remains healthy at above the 1.8 x set by MAS. A little data information with regards to the sensitivity on the FX movement on gearing. Every 1% impact to gearing is 0.01%. In terms of debt maturity profile, I think 2025, we are all done. There's nothing that needs to be refinanced for 2025.
In 2026, in fact, 2027, in fact, we are actually talking to the banks to actually help us refinance this SGD-denominated debt with renminbi. I think the whole strategy is to actually pivot more to renminbi debts to have a more natural hedging. That is what we are doing. With that, I think we should be able to cover the 50% of our debt in renminbi by end of this year. I think we remain diversified. We have introduced more form and shape of renminbi denominated debt. In the past we have done FCZ and renminbi. I think we are on the track to keep on looking at other ways and forms to actually issue renminbi equivalent kind of debt. In terms of fixed and floating, we are about 87% fixed and floating 13%. I think that covers all in all the capital management related stuff.
I pass on back to Gerry.
Thanks, Joanne. Looking forward, happy to announce that there is some good news on the AEI, but we are still working on the three supermarket AEIs to optimize our portfolio and enhance value for our unitholders. In CapitaMall Xuefu, we launched the B.U.T supermarket. They have opened in June. This is a 6,600 sq m supermarket, smaller than the previous one. But if you look at the sales efficiency, it has been phenomenal. It has achieved 7x of the sales per square meter in the first month of opening than the previous supermarket. Hopefully, this momentum continue because these are very good signs for CapitaMall Xuefu. B.U.T, of course, is a very strong local operator. They offer quality products and attractive prices, and that is one of the reasons why we have gotten them in to basically anchor this space.
In addition to the supermarket, our animation, comics, and games theme street that is opening alongside this B.U.T upgrading will open in 3Q 2025. We already have actually 100% of the space leased out. We have in fact achieved a 13% total rental increase for this space already. Shopper traffic wise, in the first month, we have seen 30% increase in shopper traffic for the mall in total. Tenant sales also have increased 33%, and I also spoke about the 7x sales per square meter for the supermarket. For CapitaMall Wangjing, we continue to make good progress in terms of this AEI for the area that we are carving out to do the new retail supermarket concept, 7Fresh, as well as the 17 popular retail and F&B units. We already see 78% of NLA signed, but with another 9% that we are under advanced negotiations.
But AEI will only complete in 4 Q, so we are making very good progress in terms of signing up leases. The ROI expected for this AEI area is about 10%. In terms of BP and logistics, also happy to share. Singapore-Hangzhou Science Technology Park Phase II , we introduced a renowned Guochao, which means a local brand, fresh quality brand. This brand is global also. The reason why we highlighted it is a brand that is very much going viral in China and they are known as a brand that is trying to take on Jellycat. So for them to now locate what would be their HQ in our Singapore-Hangzhou Science Technology Park Phase II is a sign of the attractiveness of our business parks versus our competitors. They will be putting both their office as well as their first open to public showroom in our premises. We are very excited about it.
This is one of the examples that I very often talk about where CapitaLand itself have multiple ways of engaging with our tenants. They are now using our business parks as well as using the dedicated showroom to allow their supporters to interact with them. We are also offering to them pop-up opportunity or markup opportunities on our malls to further grow their brand. In time to come, when their physical retail outlet plans are ready they could also come and open retail units or retail stores in our malls. The other thing to share is for Shanghai Fengxian , I spoke earlier, the renovation or the upgrading of the property has been completed by our anchor tenant, which is Yunfeng International Logistics (Shanghai) Co., Ltd. , which is a top three 3PL port logistics service provider. They have done the renovation. They have put in CapEx, and now they are open for business.
We will start to collect rents in July. Finally, a recap of our strategy, which really no change. We are looking to build a balanced multi-asset portfolio to leverage on China's continued focus on consumption and innovation. In terms of creating value, we have spoke about the C-REIT to be a key stakeholder in CLCR and broaden our access to China domestic capital market. We have taken the first step now by obtaining the EGM approval. We are going to unlock value through recycling CapitaMall Yuhuating. If we use all the proceeds to get on that, we will be able to improve our gearing by 120 basis points. We want to extract more value from our malls. You can see that from our activities in the three malls to upgrade the supermarket to drive some organic growth. Those are having good progress.
Finally, we work hard at capital management by taking advantage of the lower interest rate environment in China right now and increasing our renminbi debt so that our asset liability currency matching is better. Finally, to close it off, in terms of business outlook, I would just like to share that trade tensions seems to have eased a little. Although the final deal between U.S. and China or what many refer to as a grand bargain is expected to take some time. So during this period, the uncertainty is holding back companies and the economy. China's regulators continue to look at ways to give stimulus. In fact, the latest was just yesterday. We heard the latest news of direct cash handouts now to households with young children in China to stimulate consumption.
The stock market in China is actually quite buoyant, supported by domestic equity and support from the Chinese government. We hope and expect some wealth effect to filter through eventually. All these are good signs, but a lag is expected before the effects are felt more widely in the broader economy. With that, I end my presentation. Maybe I will take some question, Nicole, please.
Thank you, Gerry, for the presentation. Now let's proceed to the Q&A segment. We do have a first question. Terence, can I pass the time over to you, please?
Hi. Thanks so much, Gerry and Nicole. If I may ask a question on the finance side. What's the finance cost outlook for 2025 or maybe the second half of 2025? Also, I want to ask on renminbi, what's the hedging level? What proportion of income is hedged? What's the duration of the hedges? Maybe a second question from me. I am not sure whether it was covered earlier, but I want to ask on the retention of the DPU, what should we expect there? How are you going to use the retained sum? Thanks.
Okay. Maybe I will take the first two questions. I think for the cost of debt, you can see that for this quarter, we already saw the effect of the improvement coming from those CNH bonds that we issued last year and also this year. I think for the second half of this year, we will expect the cost of debt to hover around this level. With the initiatives that we talk about to get more banks to come in to actually lend us renminbi instead of Singaporean dollars, I think that effect, we will see that more coming through next year. I would expect another close to 10 basis points extra for that. That is the first question. The other next question—
Retention.
—on the retention. On the retention, I think, because right now, in terms of the IPO, it has not launched yet. So in terms of the cut-off point, it is not clear. Until we are clear in terms of the cut-off, then we will know whether CapitaMall Yuhuating's contribution for 2Q sort of belongs to CLCT or belongs to CLCR . In the event that it is clear that this CapitaMall Yuhuating contribution does not belong to CLCT, then we will not do anything with the retention since the issue goes to CLCR. If for whatever event the cut-off for the IPO is actually at a later time, then we will adjust the retention accordingly in next quarter.
In a way, the SGD 0.001 that we are retaining is an estimation of the cut-off.
Yeah.
That is why we are retaining it.
Sorry. If it belongs to CLCT, would you all look to distribute that in?
Yes, definitely. Yeah.
Okay. If I may ask one more question on the reversions, especially for retail side. It seems a bit weak, and you have mentioned that there were some specific tenancies. Could I get a sense of the outlook for retail reversions for the rest of the year?
Okay. I think the reversions, as you rightly point out, first half, there were some specific tenants movements that affected the reversions. If we look ahead to the end of the year, we will likely be flat or better than this level. But unfortunately, many of the movements was bunched up in the first half of this year.
Okay, thanks. Sorry, my earlier question on hedging, what is the renminbi hedging then for the income levels?
Okay, I missed that. In terms of hedging, I think we have always mentioned that our policy is to hedge at least 50% of the distributable income. As of June, I think we have hedged a high level, coming close to 90%. In terms of the duration, I think because this is really to hedge the underlying cash flow income distribution, so technically, we do not hedge more than one year. I hope that answers your question.
Is it possible to share the hedging? At what rate that is hedged?
I think for the 30th June month, definitely those hedges are in the money.
Okay. Sure. Understand.
Yeah.
Thanks.
Thank you, Terence. [Geraldine], can I pass the time to you, please?
Hi. Morning. Are you able to hear me?
Yes, [Geraldine].
Yeah, [Geraldine].
[Geraldine].
Thank you for the presentation, Gerry. I just wanted to check on DPU for second half. Should we expect it to be similar level to first half? I also note that there is limited ability to reduce cost into current levels.
Thanks, [Geraldine]. As you know, we do not really give forecasts. But if you look at the slide that I showed regarding the role of period-to-period DPU, you can see a sort of a trend, I would say. In the second half, I think the few good signs that we are seeing is for those one-off things that were in our portfolio are starting to be sort of resolved. Our AEIs will all start to contribute in the 4 Q, and our business parks, some of the one-off, for example, the Singapore-Hangzhou Science Technology Park Phase II service tenant, we have ramped up the leasing and will continue to ramp up the leasing. So I would expect some momentum to continue to be there.
Okay, I understand, Gerry. One more on the C-REIT participation. I think we got more details from your announcement. About SGD 107 million is the expected amount you will get back post the participation, right?
That is based on the floor price of CNY 748 million. That is the floor price only.
If the IPO tracks in accordance to timeline, when will you actually get back the proceeds? Will it be this year or next year?
Yeah, this will be definitely this year.
Oh, okay. Any priorities for this SGD 107+ million? Because I see that you also have a perpetual upcoming to expire in October. Will that be something you want to redeem?
I think we're trying to keep the capital structure as solid as possible. That's one thing. In terms of our use of proceeds for CapitaMall Yuhuating, I've shared with our investors as well that, of course, the first thing that we are looking at is to reduce gearing. If we do have a very positive result from the IPO proceeds, then we have more financial flexibility to do other things with it, including unit buybacks, including, if we need to catch up a little bit of the income due to the loss of CapitaMall Yuhuating's DI.
Okay. Thanks, Gerry, for the color. No one else in the queue, right? Can I just ask some more?
Sure.
In terms of the reversion, the -3% for retail was actually a number that saw the AEI uplift from your previous competitions, including CapitaMall Xuefu.
Actually, in terms of first half reversions, only two supermarket leases were inside that CapitaMall Xuefu and CapitaMall Xizhimen, if I recall correctly. You would note that what's missing, which we have not put in or because they have not been completed, is the whole AEI at CapitaMall Wangjing, which is in renovation and leasing mode, as well as the animation and comics area outside CapitaMall Xuefu, which we are still signing up some of the units. Some of those would not have been totally captured yet at cut off date.
Okay. If we look at same store basis without all this AEI, would this be a more negative number or positive?
It will be more or less the same as last year. Last year we were at just about -1. I think that's about the same traction. I think we are good.
Okay. Thank you, Gerry. I see [Yu Kiam].
Okay.
Yeah, sure. I'll come.
Thank you. Thank you, [Geraldine]. [Yu Kiam], over to you, please.
Hi, Gerry. Just a very quick one. Is there any deals on the ground in China that you can share to see where cap rates are going? And maybe an indication of where, by year end, maybe, where cap rates will be trending.
Okay. At this moment, if you look at the valuations that we discussed and what we learn from the ground and our valuers, the discount rates, cap rates have not really shifted that much since a year ago, I would say. That's number one, that's the first point. Second point, a lot of people know, and even the newspaper articles in Singapore have wrote about it, that the C-REIT market has been very buoyant. And the cap rates post IPO and at IPO has surprised many observers. But actually, it's not that surprising given that there are not many new products that are safe in China for the insurance money and the retail investors to invest in, and yields are very low in China.
I would think that in the second half of the year, as more of these transactions of injection in the C-REITs are completed at good prices, at a strong participation, there may be some spillover in terms of what valuers can look at in terms of data points for their valuation parameters. But to be honest, at this moment, it's speculation. I'm just looking at the trend for first half, and if it continues, surely, the valuers in the industry would have to consider that as a strong supporting point.
Okay. My second question is on your occupancy cost, which remains very comfortable and well below COVID-19 levels. But the reversion does not seem to fully reflect that. Is there anything on the ground that has structurally changed a lot since COVID-19?
I think that phenomena we have spoke about since last year, and I think a lot of people know that the Chinese economy is uncertain. Consumer spending has been sort of stuck at a low level. Even if you are talking about F&B, the average ticket size per pax have sort of been stuck at a lower level than pre-COVID-19. So certainly, consumption spending has been affected. That also weighs on our tenant when they renew leases. That is holding back in terms of being able to negotiate for stronger rental reversions. So you see that our occupancy rates continue to be quite high. What that means is the tenants are surviving. They are not, as some people may imagine, closing en masse. In fact, they are surviving. Some of them are doing well.
But they do not feel very bullish to be able to say, pay higher and higher rents or expand very extensively. Because it is just that the mood and the uncertainty in the economy right now is weighing on it.
Okay. Then just drilling down into your trade sectors, it seems that discretionary spending is doing quite well. Do you expect this to sustain? What is the other trade sectors, how are they doing?
I would say that it is not a factor of whether discretionary is doing well or not. The Chinese consumer behavior has shifted for quite a while now. They favor experiential trades and trades that provide them some meaning, and in affordable manner. What that does, that mean that may experiential would be F&B. People need to come together, socialize. IT, in China, they are very tech-savvy. It brings meaning to them. They chase to buy the newest technology. Then, they can share with their friends, what they purchased. And toys and hobbies. That's affordable luxury for them. Certainly, they're no longer chasing luxury goods. But things like Pop Mart give them some excitement in their life. They can collect those items, they can post it on the social media. So those are the things that we've been seeing continuous strength.
Jewelry, of course, you could say is discretionary, but really, as I said, it's driven by the fact that because the whole situation is globally, it's uncertain and people want some certainty, and gold is something that offers a safe haven characteristics. That's why we have seen gold or investment in gold-related products grow quarter to quarter this year now. In terms of other discretionary new trades that may not do that well, we can see that fashion continues to have single-digit drop, as well as some of our shoe and bags categories. So, it's not all discretionary trade is doing well. It has to be quite focused on the trends that the Chinese consumer are going towards today.
Okay. Thanks. I'll jump back to the queue. Thanks.
Thank you.
Thank you, [Yu Kiang]. [Ada Tse]?
Hi, Gerry. Thanks for the presentation. I am just wondering whether you could shed a bit more color in terms of your outlook for rental reversions for the new economy assets in the second half of the year, please.
Second half of this year, I think BP will likely be at these levels. Either high single digits to maybe touching the tens. We explained what we are doing right now is to drive occupancy. We want to make sure that space is perishable. We want to make sure we filled up the space as much as possible, and that may come with some sacrifice in terms of rents. For logistics, we did the early renewal of that one tenant. That number there will stick around for a while. But we do not see many of those big tenant renewals happening again.
Got it. Thanks a lot, Gerry. Just a follow-up question in terms of the retail reversion. I think previously you shared that this is likely to remain at around current levels for the second half of the year. I am just wondering whether this implies that you are still more concerned in terms of stabilizing occupancy versus that trade-off in terms of rental growth?
It is for retail, right?
Mm-hmm, for retail.
It is probably flat or better.
Yeah.
Because the first half, unfortunately, had many of these repositioning happening in first half. Second half, we have more good news to share when, as our AEI completed, you can already see very good progress. So that would start to fit into the reversion numbers.
Okay, got it. Thanks a lot for the color. Thank you.
Thank you, [Ada].
Thank you, [Ada]. Is there any other further questions that we have from the floor?
Hi. Sorry, this is Terence again, from JP Morgan. Could I ask on potential divestments outside of the C-REIT? You've discussed on divestments of some of the logistics properties. Is that still the potential targets?
Yeah, we are looking constantly at portfolio reconstitution options. But we also have to be cognizant of the fact that the market is weak. We certainly don't want to sell into a two-week market. We continue to observe the market, including what other people are injecting into logistics C-REITs for their assets. That serves a good data point for us, and we are studying it, and we are seeing whether at those prices, in those locations, whether there are buyers who are interested.
Thanks. Outside of the C-REIT, for some of the smaller retail malls, is there increasing interest?
I would say if I look at the transactions today, the ones that make more pricing sense have been in the C-REIT sector. The private deals have been few and far between, especially for some of the tier two cities. The fact is, when the liquidity is lower, the tier two cities actually are more difficult to trade. In the C-REIT market, at least we have demonstrated or about to demonstrate that we can trade some of those tier two assets by securitizing it into C-REITs. I still feel that for our retail assets, at least at this moment in time, the C-REIT option is the best one if you want to divest anything. Yeah.
Would you only look to divest to CLCR? I mean, given that there are probably some timing, like it will probably take some time before you can do the next divestment into CLCR, assuming that it's successfully listed. Would you look to sell to other C-REITs too?
Other C-REITs, is it?
Yeah. Other C-REITs beyond CapitaLand Commercial C-REIT.
Okay. First of all, we can sell to anybody. Yeah, we can sell to, say, the C-REIT, we can sell to third-party buyers if there are any. I explained the reason where we see pricing and activities at this moment. In terms of selling to C-REIT that are not within the CapitaLand Group, at this moment, my assessment is that charge is probably quite low. If you look at how the C-REIT industry is evolving right now. Most of the C-REITs that have been set up has been sponsor-backed. The assets all came from the sponsors and the injection, the next asset injection, the follow-on injection has also been from the sponsor. That, I think, is clearly by design. The regulator NDRC takes a keen interest of each asset injection. Actually asks a lot of questions with regards to each asset that goes into each C-REIT.
You can understand that, for that reason alone, if you're trying to buy a third-party asset and trying to get it injected into a C-REIT with a regulatory vetting process that is as rigorous, I would say, as NDRC. It's not really something that most seller would appreciate. It could take some time. Yeah. Especially when you don't have all data.
Okay, thanks. That is all I have.
Thank you. Thank you, Terence. Can I pass the time to [Gulap], please? [Gulap]?
Yes, sorry.
Yeah, you are on mute.
Oh, gosh. Yeah. Oh, hello. Hi, Gerry. Back on the C-REIT question that Terence asked. If the pricing is better within the C-REIT, why would the sponsor offer the property to you instead of CLCR? I mean, for the other malls that the CapitaLand Group have that you have the right of first refusal to? That is the first question.
May I answer that question first?
Yes. Yeah.
Okay. As I have shared before, we still have the right of first refusal. That covers about CNY 18 billion of retail-related assets. The sponsor itself have SGD 18 billion of just purely retail-related assets. I think that also does not include the Raffles City portfolio, which is about another CNY 120+ billion of assets. This is just from the sponsor. The pie is extremely large, just to start off, first of all. Second, there is a sizing difference. At this moment, when CLCR gets started, the size is, I think, will be just below CNY 3 billion. In comparison, now we are SGD 4.7 billion, so that is about CNY 22 billion-CNY 23 billion. Some of those assets that the sponsor have will be pretty big significant. Probably not something that the CLCR can take on at this stage.
They also have to go through its own capital raising, its own approval process, and also need, of course, the shareholders to approve as well. Thirdly, also related to size. CLCT, us, we are more flexible. We can take part stake, we can also take full stake. CLCR, the C-REIT can only take 100% stake. So if there's large asset, a good large asset, a good price point, we are flexible enough to take some of that asset progressively. Whereas, for CLCR, they don't have the option at this point in time. It's really quite binary. I've mentioned a little bit about the rigorous process that, in terms of asset injection, the NDRC and the other Chinese regulators are involved with. You can tell from our own example, we took about two years to set up this C-REIT.
So the vetting and the timing is also an issue in terms of injection into a C-REIT. After listing, for example, again, there's additional rule of one year moratorium before the next asset injection can take place. So there are multiple factors. In terms of asset itself, the C-REIT is looking at more peak income producing assets. Whereas CLCT can do a little bit more of a value add opportunity, where we can see some improvements being made, and we can buy asset that needs a little bit of AEI or some reconfiguration. That certainly is more flexible on CLCT's part. So I would say that both REITs would have their own focus, would have their own speed to market, if you would. CLCT have some of those advantage. But of course, CLCR have their advantage as well.
Okay. The second question is more on your Singapore-Hangzhou Science Technology Park Phase II . Did you say that the new tenant that is backfilling the 20% space that was vacated, did you say that the rents are higher than the existing rents?
Yes. So the service office tenant in Singapore-Hangzhou Science Technology Park Phase II that pre-terminated, taking about 20% of that phase two NLA. We treated them as anchor tenant at that time, so they had a slightly lower rent. So because now when we took over the space and we are letting to smaller tenants, we are able to push up the rents above whatever this original big tenant was paying.
Did you mention the amount above the old rent?
I didn't mention it, but it's a double-digit reversion.
Do they start paying this year, do they?
Yes, they start paying this year. But there's some lag, because as we sign them up, we have to give them some feed out, some of them, maybe some rent-free, you know.
Mm-hmm. Okay. Thanks. I do not suppose there is any chance of putting the business parks in a C-REIT, are there?
Well, in the current market, there is already business park C-REITs. So that factual point is there are business park C-REITs in the market. If you are talking about CapitaLand's plan, we are focused on making sure our retail C-REIT launch well. Then they will review plans to see whether they want to do other type of C-REITs.
Okay. Just one last thing on the C-REIT. Is there a minimum size?
There is not a minimum size. Size of the—
Asset size.
Assets. Okay. In my recollection, there's no minimum size. But most of the C-REIT, when they go up, in the market now they have been about CNY 3 billion-CNY 4 billion sort of asset size. Renminbi.
Renminbi. Okay. Thanks. Thank you. Thanks
Thanks, [Gulap].
All right then. [Geraldine]?
Yeah. Hi, Gerry. Yes. I'm back. If you just- extending to [Gulap]'s question, if CapitaLand do come out with another C-REIT position at new economy asset, would that be something that you want to participate in? Because also mindful of your 40/30/30 long-term target as well, and divestments has mainly been in the retail space for you.
I think number one, maybe I address asset allocation. At this point, although we are increasing our financial flexibility, I don't think we will shift our asset allocation by too much. We discussed with our investors and our board. We want to make sure that we have relative resilience in our portfolio. That's one thing to note. The second thing is, will we also participate? Of course, that's quite speculative, but you can imagine that the sponsor definitely would put us in that discussion since we have worked well together. Certainly, we are part of the whole CapitaLand Group. If we serve our unitholders well to be able to monetize at a good price, certainly, we will join in.
Okay. Understand, Gerry. Back to the retail C-REIT, understand that maybe thinking too far ahead, but that requirement, would they look at too, for future injection into the new retail C-REIT?
Sorry, [Geraldine], you sort of dropped off when you were on the other part of the question. Could you repeat that?
Oh, okay. Yeah. Gerry, I think one year post IPO, the C-REIT can acquire again a retail asset. What would you speculate them to be a requirement for asset injection on the C-REIT fund? Yeah, because there is no minimum size, et cetera, and probably accretion is going to be much easier for them.
You are asking me to speculate what kind of assets would go next into the—
Yeah. Or even what could they want from CLCT, essentially, if there's any that could fit their bill.
I think CLCT, CLI, and CLD are now all the joint strategic investors who will be the biggest shareholders in that C-REIT. All three of us will look at our own strategic plan and see if we have anything to offer to the C-REIT if we want to. It's a little bit difficult to speculate what's next that will go into the C-REIT. From our perspective, the same principles that while we selected CapitaMall Yuhuating will still apply. We want to select asset that we believe we have basically extract full value from. When we sell the asset, we must have a good use of proceeds for the money that's coming back.
Okay. Thanks, Gerry.
Thank you, [Geraldine]. Over to you, [Dexter].
Hi. Morning here. I just wanted to double-check on, I think you kind of answered this just now, but I just want to check on it. In terms of your sense for injection of assets to C-REIT, for example. If we divest, for example, the kind of future outlook would most likely be that you divest towards a REIT rather than, say, a private deal for divestment with other private investors, because you expect that you can get better values of a divestment for an asset. In that vein, if you could just double-check, so when you divest CapitaMall Yuhuating, you expect this minimum pricing to be met, right? At the very least.
Okay. First, I did say that at this moment, it looks like the C-REIT market offers better value for the retail asset. But of course, market moves in a cycle, right? At this moment, I can say that it is because I see evidence of values being stronger there. That is one. Two, you are asking about the
I think at the end of the day, for us, when we divest, we will always look to the party that can offer us the best pricing in the interest of CLCT. Yes, if CLCR at this point, as Gerry mentioned, offers a better price, we will look to divest into the C-REIT. But right now, we are also definitely open to talking to other third parties if the deal works in the best interest of us.
Sorry, what is the second question again?
The second question is about the minimum pricing. Are you confident on that?
Oh, okay. Well, actually, first of all, the floor price they have set is based on the two independent valuations. We are actually following MAS regulations. We cannot sell lower than the lower valuation, which is CNY 748 million. If you ask me whether we feel confident when we go to the market after the IPO price, I would say I feel pretty good, given that the market has been pretty buoyant.
I see. Okay. Just to follow on the first one then, your sense then is that in a sense, retail investors and sponsors of C-REITs are more optimistic about the general Chinese property industry, rather than, say, more private investor base that might buy asset offices, for example. Right. Is that the indication that you guys are getting from the market so far?
I think I would surmise to say that the way that the Chinese authorities credit, that they have made this C-REIT product, in a way, transparent to and easy to understand for the investors in the China market. Right. Of course, you could say almost they over-regulated, but they put their stamp on it, and really vet each asset that is going into each C-REIT. Almost like a stamp of endorsement gives the Chinese investors lots of confidence, when a C-REIT is listed. So in an environment where people are looking for yield and they are looking for safe yields, that someone has scrubbed it and it is safe. Right. The multiple layers of safety that is being offered through a C-REIT product does appeal to many domestic investors. Right.
So if you look at the consumption C-REITs, the trading yield right now is about 4%, or below 4% for some of them, for the stronger ones. Right. That is still better than the insurance player, who needs to meet their cost of funds of 2% - 3%. Right. Their options are, in the past, to invest in government bonds, which have fell from, I think, maybe 3%+ to now below 2%. Right. So it is below their cost of funds. Right. For the retail investors who put their money in fixed deposits, that is 1%. Right. So certainly, that whole yield chasing environment make this perceived safe product to be very popular among the Chinese investors. So I would say that is helping it. Right.
Okay. Thank you. Sure.
Thank you.
Thank you. Can we hand over the time to Michael, please?
Hey, Gerry, it's Michael from UBS. Just a quick one. I wanted to just get some clarification on a comment you made on the business park space. You mentioned that the Singapore-Hangzhou Science Technology Park Phase II , you're getting double-digit rental reversions for that. If I look at your business park reversions for the first half, that's - 8%. If we remove Singapore-Hangzhou Science Technology Park Phase II , what would the number be?
I do not have an exact calculation of it, but you would know it is probably higher. It is probably between 8%-9% negative. You must remember the replacement tenant that we are having is just 30% of Singapore-Hangzhou Science Technology Park Phase II . The total portfolio is much larger than that.
Okay. The - 8% is basically dragged down by a lot of other renewals that you are doing.
That is right. If you exclude Singapore-Hangzhou Science Technology Park Phase II itself, as I said, probably about minus 8%-9%. You will creep up in terms of negative.
Okay, got it. Thanks very much.
Okay. Thank you. Thank you, Michael, for your questions. Since we have already passed the 10:00 A.M. mark, we will conclude the session for today. Just feel free to reach out to me if you have any questions. Thank you all and have a good day. Thank you.