Hi. Good morning, everyone. Thank you for joining us. CapitaLand China Trust 1 Q 2025 Business Update Call. I am Nicole, IR for CLCT. I have with me Gerry, CEO, Joanne, CFO, You Hong, Head of IPM. For the next hour, we will start with a brief presentation to provide an overview, followed by a Q&A session. Once the presentation concludes, we will open the floor to questions. If you have a question, please feel free to use the raise hand function and I will pass the time on to you. I would like to pass the time now to Gerry. Gerry, please.
Thanks, Nicole. Welcome, everybody. Thank you for coming, joining us this morning for the CLCT business update for 1 Q 2025. First, just a quick snapshot again of our portfolio. The biggest portion of our portfolio is retail. It is the largest, most resilient asset class, 71.4% of GRI. Business park is a smaller subset of it, 25.1%, and then logistics park, 3.5 GRI. In terms of our 1 Q results, the key highlights, gross revenue dropped by 6.1% year-on-year versus 1 Q of 2024. Net property income dropped by 6.6% versus 1 Q of 2024.
One thing to note was, in 2024, the first half of the year was a much stronger year, generally speaking, whether it is for CLCT or for most commercial and industrial players in China. The other thing to note is that, you would know that we are doing some supermarket upgrading. Some of the AEIs that we have announced. We have announced the supermarket upgrading in CapitaMall Wangjing in the previous quarter. In this quarter, we are also happy to share the supermarket upgrading plans for CapitaMall Xizhimen and CapitaMall Xuefu. So those upgrading or AEIs have basically affected some of the gross revenue and NPI numbers that you see today, which is why we excluded some of them for you to see what is the effect if we have excluded them.
There was another significant event or another significant thing that happened in the first quarter of this year. In Hangzhou, one of our business park, Hangzhou phase II, had one of the big tenants basically pre-terminating. We had to take over the space and then backfill some of the spaces. We have been moderately successful with it, but there has been, of course, some cash flow impact in the short term. Excluding the business park service office tenant and the supermarket upgrading, our gross revenue would have dropped by 4.4%, and our NPI would have dropped by 4% instead of the 6% over that if you included those two effects.
In terms of retail segment, if you exclude the supermarket upgrading, that segment itself revenue would have declined by 2.7%. That is mainly due to the retail rents at CapitaMall Jingan. Business park segment, the revenue would have declined by 9.6% due to the low occupancy at Hangzhou phase II and AIT, which we are still trying to backfill the space that was left vacant in last year, around second and third quarter. Logistics park, that is a positive sign this time around. We have managed to increase the revenue by about 3% due to the increase in occupancy at Kunshan. Overall, there was a decline in NPI due to drop in gross revenue, offset by savings in operating expenses. We have saved about 5% year-on-year for the overall portfolio.
Some of the key milestones recently in the 1Q that we have embarked on and successfully completed. We have announced the proposed participation in the C-REIT, CapitaLand Commercial C-REIT. I will not go through too much of it, but I think we have made announcements, and we are very excited to be able to present this participation opportunity. We have just done some of the communications earlier on. The key point about this is it is a strategic opportunity for CLCT to participate as a key stakeholder, and it broadens our access to China domestic capital market and gives us a chance to have control of a vehicle where we can unlock value of mature assets. At the same time, the C-REIT units itself have potential upside for our unitholders in CLCT.
The other thing that we have executed was to successfully issue a 600 million RMB bond. That was also in April. We launched this and the pricing was at 2.88%, which is better than the last bond that we did at 2.9%. Again, we executed well. Now we are at about 41% of our loans are RMB denominated. We are working towards 50% by year-end. This is an interim target. If we manage to hit this earlier, we will try to push for more. In terms of sustainability loans, we have increased it to 56% from 36%, one year ago. Breaking down the segments, some operational updates. Retail continues to have high occupancy, 97.7%. That is the same as one year ago. Our key malls like CapitaMall Xinzhuang, CapitaMall Xuefu, CapitaMall Nuohemule, still enjoy very high occupancy.
Almost fully leased or fully leased. In terms of rental reversions, we benefited for retail. We have a 0.5% positive rental reversion. This is boosted by the upgrading of supermarkets at CapitaMall Xinzhuang and Capitamall Xuefu, where we signed new lease with the new supermarket and concepts that are coming in. That' s positive. If we exclude the two supermarket leases that we signed, and the reversions will be about -1%, slightly negative, which is similar trajectory to last year, which we reported just slightly negative reversion. In terms of the bright spot for reversion, F&B and IT continued to be bright spots, scoring single digits positive reversions for 1Q. For our retail portfolio, we just want to emphasize again, low exposure and reliance on U.S. imports, for our retailers, for our tenants. In terms of business parks, our occupancy did drop from December 2024.
There is still oversupply in the market. If we go through each of the portfolio, they have different reasons for it, which I will explain. For Ascendas Xinsu, it continues to be stable and it has a strong positioning. We still have continued new demand for international companies. The drop from, I think about 96% and 94%, 96% was December of last year, predominantly was because one of the tenants left to a new location. We have already got in a commitment of a new tenant, but there was some transitionary gap. We should see this occupancy go back up by second quarter. In terms of the Ascendas Xinsu in particular, I think last, we mentioned that the Ascendas Xinsu portfolio, there are some manufacturing tenants who may have some U.S. exposure, but it is only contained to a small handful. That is number one.
Number two, we have also surveyed majority of large industrial tenants who are expiring in 2025 in the Ascendas Xinsu portfolio, and they are committed to renew. With those few data points and our understanding about our tenants in the portfolio, our assessment is that there is limited U.S. tariff exposure for our particular tenants in the Ascendas Xinsu portfolio. Next one, AIT and AIH. AIT, you can see the occupancy is 74%, AIH 91%. AIH, of course, is doing well at 91%, improvement in occupancy with new tenants in ICT and electronic sectors. AIT has been gradually backfilling the space that was vacant from last year. We will continue to do that, to continue to push the backfilling, so that we can get back to a better position by this year. Next, Guangzhou. Guangzhou occupancy as a cluster is the lowest of the three clusters.
For phase I, the occupancy is 71%, phase II 70%. We reported earlier quarters that there has been a lot of churn in Guangzhou. We are doing a lot of new leases, but there has also been people who have left us. Particularly in the first two, in Guangzhou phase II, there was a pretermination of a service office tenant, which occupied about 19% of the phase II NLA. What happened is when they preterm, we took over. Our property managers quickly backfill about 9%, and there is another 3% that is looking to be backfilled in April. We actively did that through our property managers who directly engage with the service office subtenants to sign them up. We are still doing active leasing efforts in order to secure tenants for the remaining space.
The bright spot to this is as we backfill these tenants, as you can understand, when we did this master lease to the service office tenant, as a master lease, the rents tend to be slightly lower. As we backfill and directly sign the leases with the subtenants, we were able to get a slight positive rental reversions on that space of 90% of NLA for phase II of Guangzhou. In terms of logistics parks, Logistics Park, high occupancy predominantly because we have signed the Shanghai Fengxian Logistics Park. We have got a master tenant for 100% of the space. That tenant is still currently doing CapEx works to improve the property. The progress has been very smooth. They have done about 60%- 70% of the work. We expect it to be completed on time, and we expect to get our first rents, cash-wise, in July of this year.
In terms of Wuhan and Kunshan, they maintain 100% occupancy. The one that slipped was Chengdu, and that is also transitional. There were some tenants who left us, and we are backfilling them with a list of committed tenants. We are in that transition period, and the next quarter we should be able to see it bump up to closer back to the 4 Q occupancy, which is closer to the high 80s number. Again, logistics park, just to report in terms of tariff impact, the three of our logistics park, Wuhan, Kunshan, and Chengdu, they focus on domestic distribution. The master lease tenant in Shanghai Fengxian Logistics Park is in the export trade, but he has little exposure to the U.S. market. Moreover, he is carrying out CapEx, committing his money, and he has signed an eight-year lease with us, so he is very much anchored to the facility.
We see minimal impact or little risk from these tenants. Some highlights of shopper traffic and tenant sales. For the retail segment, shopper traffic grew 2.4% for the first quarter year-on-year. Tenant sales was mixed. It dropped 2.4% on overall basis, but that is very much predominantly caused by the supermarket upgrading effect, as supermarket were basically hoarded up to do works. We actually lost a big portion of the sales there. If you look at, if we excluded the supermarket upgrading at CapitaMall Wangjing, CapitaMall Xizhimen, and CapitaMall Xuefu, the 1 Q tenant sales would have grew by about 1%- 0.7%. Our occupancy costs are still very healthy at about 17.7%. In terms of the key trade categories, again, you can see some of the strength that we have reported in previous quarter in F&B, we are about +5%.
IT was a stunning uptick of 22%, driven really by consumption vouchers that was given out during that period. Leisure and entertainment, also a very big improvement of +11%. There was a blockbuster that was showed during this period, "Ne Zha 2", maybe some of you would have seen it or heard about it. So that definitely was very popular in China and people flocked to our malls to the cinemas to watch it. Jewelry wise, it also got an uptick, +9%. Of course, very much driven by established brands and Chinese New Year is a good time for many people to buy jewelry. So those are some of the key trade sectors that have improved. Next, I will pass it to Joanne to talk a little bit about capital management.
I think for the capital management front, Gerry has actually touched on a little bit, but I will just give a brief on the proposition as at 31st March. As you can see that our total debt has actually inched up a little bit, mainly because of the temporal timing difference that we had to actually pay our distribution in March, and we have not really gotten our cash. But rest assured, we are still to be able to bring the cash back. It is just a timing difference. Which is why then you see that gearing has actually gone up a little bit to 42.6%, and also because at the back of weaker RMB. But we are pleased to say that our average cost of debt remain as steady 3.51%, and we have also extended our average term to maturity to 3.9 years.
On the interest coverage ratio, we are also healthy at 3 x, as based on what our MAS guideline. We have also done the analysis. With the 100 basis points movement in terms of interest rates and also the 10% decrease in EBITDA, we are still well within the 1.8 x set by MAS. This is just another pictorial of our maturity profile. We have done all our refinancing in 2025. Nothing needs to be refined. Any actions that we are doing for replacement of Singapore dollar with RMB will be very much opportunistic. Like what we have mentioned, we have done the 2.88% RMB at 600 million in April. With that, our RMB to total debt will be at 41%. I think on the right side, you can see that our funding sources has been expanded.
We have a mixture of RMB loans and also CCIRS to help us reach our 50% target for this end of the year. Okay. With that, I think I will let Gerry complete the rest of the slides. Thanks.
Okay. You can see that our retail occupancy remains high. We have continued design engaging lifestyle experiences for our retail malls. We also incorporated sustainability in our operations, holding events that are associated with it in a few of our malls. Business park, I have explained the drop from 87.6%- 83.7%. Predominantly, the effect came from Hangzhou phase II. And some effect of Ascendas Xinsu, which is transitional. Our business park, generally, the cluster occupancy is outpacing or on par with the sub-market occupancies. Some of the markets are oversupplied, so we are pleased that we are outperforming some of those markets. We continue to engage our business park community by holding events with them. Logistics, I have talked about in terms of the slight drop in Chengdu, which is transitional.
Looking forward, some of the things that we are going to do for 2 Q all the way to the end of the year. One of the strategies that we have talked about is to continue to extract value from our retail malls by doing AEI. The first one that we have announced was CapitaMall Wangjing. This gives a little bit more color of what we are doing. We are introducing new retail concepts to the market, which is 7FRESH, operated by JD.com, in that 8,800 sq m space. But they will not take the whole space. The big portion of it will be carved up to do other sort of retail and F&B outlets, and have more experiential brands that come in to give a broader product selection, and then enhance the customer's shopping experience.
Now, this is CLCT's second 7FRESH outlet, so it is our second cooperation with 7FRESH. The first outlet was very successful at CapitaMall Grand Canyon. When we launched it in 2023, in 2024, we can see that the GPO actually went up by 3x . This has given us confidence to introduce this in our AEI for CapitaMall Wangjing. There has been good leasing progress achieved for the first three months already. We have physically signed up 53% of the tenant, and there is another 24% that are currently under advanced negotiation. The physical works are still ongoing, and we expect to open the new space by fourth quarter this year. ROI is expected to be double digit for this AEI. The next project that we want to introduce is at CapitaMall Xuefu, which is another supermarket replacement.
Here, what we are doing is we are working with a hyperlocal supermarket brand, meaning that they are very local to Northeast China. They are one of the strongest players. The brand is called B.U.T. Supermarket, and it is well-known because it has a very good supply chain management capabilities, able to source quality products at very attractive prices. They also lay out the supermarket in quite a unique way, and that resonates quite well with the shopper in Northeast China. Besides the supermarket itself, they are also curating and integrating 1,700 sq m animation and comics and games themed street concept into the outlet in order to attract younger generation shoppers. All this, the supermarket, as well as the animation, comics, and games themed street. The CapEx itself will be borne by the tenant. We actually do not spend any CapEx.
This is a great outcome for us, and we get a new concept, and we get good returns. At the same time, we actually do not need to spend any CapEx to do up the space. In terms of the operator itself, we are experienced with them. B.U.T. Supermarket actually opened at CapitaMall Aidemengdun. Again, the sales when they opened was 3 x of the previous supermarket at Aidemengdun. We believe that we will see similarly exciting numbers once they open. They are expected to open in third Q2 2025, and our expected rental increase from this is about 10%. The final one that we will talk about today is at CapitaMall Xizhimen. This is, again, a supermarket at about 10,000 sq m. We are going to transform, with the help of a tenant and operator, this space into a DTX concept store.
DTX is actually a new retail concept that is created by SKP, which is one of China's most successful departmental stores. They already have something in Beijing called the DT51 flagship store. We saw that it was very popular with the people in Beijing, and we worked with them to see whether they can bring it into our Xizhimen location. They were excited about it, and what we have worked with them is to have them target the more mid to high-end consumer with a younger, more accessible take on the SKP model. Which the SKP model being a very high-end, maybe slightly more mature positioning. So they are doing that through their DT Select and DT51 branding, and they are going to establish one of these stores in our Xizhimen location. What does that include?
It's going to include a premium grocery. It's going to include boutique retail, multi-brand collection, which is going to be curated by SKP itself who have, I would say, one of the broadest connection to mid to high-end fashion brands and lifestyle brands in the Beijing market. There's also going to be social spaces. We're going to have some thoughtfully designed cafes and bookstores and dining dens within that space to make our basement more lively. Because about our basement space is actually taken up now by this supermarket space. By converting this traditional supermarket into what we believe will be a more dynamic space, we're going to improve the flow of the whole basement, and with the curated offerings support, and continue to bring new traffic and new sales to the rest of the mall, whether it's in basement or level 1 or beyond.
We believe that upgrade will elevate our mall positioning and drive benefits for all our tenants. Here, we'll just recap our strategy and way ahead for the next year. The proposed C-REIT is, of course, a big part of it. We're using it as opportunity to create value by becoming a key stakeholder in CLCR. We're going to use it to unlock value by recycling Yuhuating, unlocking the value of this matured retail asset, which we have already done our AEIs, and improve our financial flexibility. We will extract value. We have basically today introduced three big initiatives that we are doing to continue to improve our malls, but clearly addressing some of the outdated supermarket formats that may be in some of our malls. That would, once completed, drive some organic growth.
Of course, we continue to be very active in capital management, as evidenced by our April RMB 600 million bond at 2.88%. We continue wanting to push more in that front to achieve greater natural hedging. With that, I think we can end presentation. Nicole , we can go ahead and take some questions.
Okay. Thank you. Thank you, Gerry, for the presentation. We have actually a question from Rachel Macquarie that she sent in. With regards to the increase in the logistics occupancy and demand, are these led by the trade war? Are businesses taking more space for goods because of the uncertainty?
Okay. I think that currently it is too early to tell. We cannot really tell from our logistics portfolio so far. We are almost fully leased, so that is one thing. I would let You Hong , maybe you want to touch on whether there has been any positive impact of warehouse, I suppose, backlog-
Yeah.
because of the trade war.
So far we have not, I think, seen the impact. In our portfolio, in fact, like Gerry was alluding to, it is actually quite full. In fact, we actually serve the domestic tenants and the distribution locally to begin with the exception of Shanghai and that also probably do. I think what we might observe in the broader outside of our portfolio is the southern market, which I think people are watching very closely. But again, a bit too early for us to reach any significant conclusion there. Because south market is really heavily involved in the export and-
South China.
South China is where a lot of the export business were carried out. So I think we will watch out for this space carefully.
Thank you. Can I pass the time on to Terence Lee, UBS, please?
Hi. Good morning. Can you share what is the effective renminbi rate in first quarter inclusive of the FX hedges, as I am trying to understand how close we are to spot and when do we converge to spot eventually?
Maybe I need to check the numbers, but offhand, if you look at it right now, what we are having in terms of the bond, the 2.88%, if you compare to, if I were to actually enter a Singapore dollar zone right now, I think these couple of weeks or days, we see that SORA has actually come off. So typically, if you look at SORA, a swap rate of a three-year, I think it can be very competitive at close to 2%. So if you add on a margin of 1-ish percent, it could be about 3%+ . So effectively, if you look at the CNH that we have done, on the interest front, it is still better off based on interest rate.
In terms of FX, how you can look at it is if we compare against the Singapore dollar rate that I have mentioned, then you swap it to renminbi, for example, then I think it is still quite close to what we have done. Maybe it could be a little bit cheaper based on current environment. It really depends on the market because it is very volatile in terms of the floating rate and the swap rate. So, yeah.
Sorry, actually, I was referring to your FX income.
FX income.
Income.
Can you be-
More specific? What were you
Meaning I am not referencing the interest rates, how you are hedging it. So basically, if I look at renminbi dollar that has weakened in the past month.
I am trying to figure out, when do I see this weakness flowing through into your P&L?
How do you see that flowing through the P&L?
Okay. Yeah. I think part of it would have already flowed through our P&L. Because it's first few business updates-
Yeah.
the numbers that we presented are-
Renminbi.
Renminbi based. So half year financial results will be actually disclosed only in the first half of this year. Yeah.
Okay.
Yeah. The short answer to your question is, if the renminbi weakens during that period, of course, when you compute the-
Yeah.
distribution, there will be an effect.
But maybe if I address your question the other way around, I think we will translate our NPI operation numbers to Singapore on a monthly basis.
So maybe, I think for 1Q, we have used an in-house rate, which I think at that time was close to about still below 5.4%.
Yeah.
Okay. Got it. And on the part on broader logistics weakness, the southern market is something to watch, but in the broader market itself, there's still a fair bit of vacancy. We already saw one relatively sharp round of repricing, I think, for this one lease cycle, and I think we are coming off that lease cycle. As we enter to the next one, should we be thinking of another round of sharp repricing?
I think most of our leases are filled up, right? Maybe this quarter we have done one lease.
Logistics?
Logistics.
Yeah.
Logistics. I think that's the only big one that's maybe for expiry. Beyond that, the biggest space that we have, I think we have already filled them, particularly the one. We signed a long lease for it.
Yeah.
Beyond that first few lease, I don't think there's much more that we would announce new leases. Yeah.
I just maybe add on a little bit more. The leases that we signed, as you mentioned, we have actually largely marked the market.
In fact, this quarter, we have actually taken early action to secure another, I would say, year-end expiry by another one year.
Yeah.
That actually do have a little bit of a rental.
Similar to last year.
Similar to last year.
Going to second half, I think our expectation is there won't be a lot, maybe 1/3 of the Kunshan, there's one property which is going to be expiring in the third quarter. We are in discussion with the tenant. That will be something that we will probably see a bigger one in the second half. Other than that, we don't have any.
Okay. If you could share how much of the income will turn offline due to the retail AEI that's ongoing.
Income downtime.
Like as a percentage of maybe portfolio rental income.
I recall vaguely that number is about close to SGD 10 million-SGD 20 million. If you use the SGD 20 million, maybe that is a gauge, something that you can take a look at.
Because the downtime that we are expecting is in the range of six to nine months. For the three months.
I think it will be less than SGD 20 million. First Q, as I remember, our effect for that few AEIs was SGD 3 million-SGD 4 million.
SGD 4 million.
Yeah, about SGD 4 million. So even if you multiply by two, three, four on average, three, four quarters. Yeah. Some are opening 4 Q, some are opening 3 Q.
Okay. Got it. Thank you.
Thank you. Thank you. Terence, can I pass the pen on to Geraldine, please?
Hey. Hi. Morning, Gerry and Nicole. Can you hear me?
Yes.
Okay. Maybe are you able to give us a sense of the reversion sign for this quarter? For retail, I know it is slightly positive, but without these AEI leases, would it have been a negative number?
Actually, we have shown our slide. Without this, it will be slightly negative. Actually, quite close to 2020 full, whole year. Yes.
You are talking about the supermarket lease, right?
Yeah. Almost 1%. Okay.
Yeah. Correct.
How about the new economy? I mean, we all know that it is negative, but has there been a trend in-
The BP leases, I think last year we reported about-
-0.5%.
Yeah, about mid negative, right? Mid single digit negative. It is within that space. Yeah. For the lease, yeah.
Okay. Thank you. Maybe just one more, I think, on the interest cost. The RMB 2.9 loan looks smallish. Will it move the needle for your full year interest cost guidance, and any chance that you can borrow more under this facility?
Yeah, I think it is small, but then coupled with the one that we have done in October, I think it will move about 5 basis point on a per annum basis. But I think-
Portfolio-wide.
portfolio, yeah.
Portfolio-wide, yeah.
Per annum basis. Yeah.
I guess whether we have any more opportunity, I think we are always constantly working with the banks to see if there is any opportunity. Just thank you.
Rest assured, that is what we are trying to do.
Okay. Yeah, thanks. I take it that your 3.5% guidance will be flat for the rest of the year.
It will be slightly lower if, let's say, everything remain constant.
Yes.
Yeah.
Okay. Maybe just one last quick one. Are you able to share the break cost terms within your portfolio now by the three segments?
Break cost terms. Break-
Yeah. So you say the early pre-term, are you given any rents or any other form of-
Typically, we do not. For especially the typical two, three-year leases, we actually do not really provide specifically early termination from the tenant's part. So, in the sense that if tenant breaks, then they will actually have to forfeit the deposit and actually be liable for all the losses that the landlord is suffering. Obviously, all the losses is something that's a bit more debatable, that sometimes the court will support all the way to the end of the lease. But nowadays, I think, the court will not go that far. I think that's usually-
Arbitration.
Yeah. I mean, we have to go down to the individual cases. Yeah.
Okay. The deposit will be like three to six months?
Typically, those were three, but for longer leases, yeah, we can look at about five or six, if it's really the kind of anchor. Yeah.
Okay, got it. Thank you so much.
Okay.
Thank you. Thank you, Geraldine. Can I pass to Cindy, please?
Hi, this is Cindy. The first question, I want to touch a little bit on C-REIT. Apart from the retail mall, will we consider doing C-REIT for your business park or logistic park? Also on the commerciality behind your C-REIT, because if you are a C-REIT, effectively, I think you need to provide somewhere around 3.8% or above yield, versus I think you mentioned your mainland China loan can be below 3%. So how should we understand the, say, financial reasoning behind doing a C-REIT versus, say, doing just RMB loans or operating loans, et cetera? That is the first question on C-REIT.
Okay. Thank you for the question, Cindy. Okay, so first of all, the C-REIT is not a debt instrument. It is actually an equity instrument that is basically launched in the A-share market in China. In this case, Shanghai Stock Exchange. We are doing it in conjunction with our sponsor. Our sponsor, CLI, and of course our other daughter, CLD, us. We are collaborating together. CLCT is injecting CapitaMall Yuhuating , and our other CapitaLand affiliates are injecting this CapitaMall SKY+ into this new C-REIT, which will be launched as a new IPO on the A-share market. So that is one. I will answer the second question first. It is actually not a debt instrument. I would reiterate why we are doing that is because we are trying to tap the domestic liquidity, which is pretty strong for this product.
We are using CapitaMall Yuhuating to seed this, trial this, start this C-REIT up so that we start an additional avenue to recycle our assets. If you are asking what is the kind of rates of the C-REIT right now, typically the trading yield for the C-REIT, cash yield for the C-REIT is between 4%-5%. This is equity, not debt. The other question regarding whether we are doing business apart from logistics part C-REIT, I have answered in previous call that I do not think CLCT is the right party to answer, because really it is CapitaLand and CLI level initiative. We were invited to join in and participate to team up because we also have an interest in it.
But the decision to start more C-REIT will be something, or not, will be something that CLI or CapitaLand Investment group will decide on their strategic intent.
Thank you, Gerry. My second question is on the portfolio reconstruction or, say, your strategy to potentially stabilizing the portfolio operations. Effectively, I think the C-REIT and the supermarket upgrades are great movements. What are some of the upcoming strategy or plans you have to further enhance the portfolio? How do you see the underperforming segments? Any divestment plan? I think you mentioned earlier, a few months ago, about the potential sale of Shanghai Fengxian Logistics Park if a property opportunity emerges sale, but it is still something worth thinking. Yeah.
Maybe in terms of stabilizing the portfolio, I will let You Hong talk about the things outside the AEIs, and then I can take the portfolio reconstitution question. Yeah.
Our priority in terms of portfolio operation and the asset management, I think apart from the AEI, the other assets are still trading well. Gerry has gone through each of the sectors. For retail, we are generally okay. For other two, where we actually prioritize occupancy and actually we are better than market, and we are actually also, in terms of rents, are generally also above the market, I'll say. Right?
The stabilization work in terms of our portfolio, I think generally cycles with the occupancy, I would say. We are just stepping up the leasing effort.
Mm-hmm. For example, business parks. Okay, logistics, we are almost full, so really nothing to talk about. For business parks, the team and us, we are thinking of course, continuing to think of more ways to make it easier for tenants to plug and play into our space. Some of the initiatives to promote the take-up of space is we may do some very basic outfitting of some of the spaces. Not very expensive, just basic outfitting, so that whoever requires a space can immediately take up the office space. This works actually quite well for the smaller tenants especially. In Hangzhou, we have, for example, a lot of small tenants who actually don't really have high requirements for their business park office space. They just want to start work, because they are entrepreneurs. We've been to a few in March when we visited.
We have been working out packages to make sure we can have plug-and-play office package for people to come in and lease up quickly.
On the portfolio reconstitution side, apart from this, obviously, we are actually trying multiple fronts. At the moment, I do not think we have anything other than the C-REIT that we talk about. Other than that, are still work in progress. We are not ready to share. But indeed, what you have mentioned is still on our agenda.
Shanghai Fengxian Logistic Park in particular, I think we are actually trying to look for possible monetization. But bear in mind that today's market is pretty tough, and actually we are also just a-
Secret attendant.
secret attendant. And so actually, we will also want to time it a little bit more carefully.
We will continue our effort on those fronts.
Thank you. The last question is on, so basically some of your peers have given out plans on divestment and saying that they will use a certain percentage of divestment proceeds to buyback, if actual. I know you have mentioned that the current priority is operations and maybe gearing level before you consider any buyback. But would it be something on your agenda in, say, a certain horizon when your gearing returns to which level, or when you say at what comfortable situation of your portfolio operations will you consider buyback?
I think I have talked previously, unit buybacks is certainly an option. That is number one. Two, as to when we do unit buybacks, that should be aligned with our own financial situation. As Joanne has shared, our gearing is slightly elevated.
We need to work on that first. Once we get that reduced, to reduce the gearing, then I think we have more financial flexibility to do unit buybacks.
Of course, one of the things that with this proposed series is that with the CapitaMall Yuhuating divestment during the release of circular, we will probably share some illustrations and plans of what we will do with the proceeds. So that is something that maybe we can take a leave off once we release it.
Thank you. That is just help me.
Thank you. Can I pass the pen now to [Myrmele], please?
Hi, Gerry and team. Just want to check, what are those consumption vouchers you were referring to, and are you expecting-
Consumption vouchers.
Consumption vouchers are, I think these are quite closely related to the trading programs. I think the China government have launched end of last year and also expanded the scope beginning of this year. These are more related to the home appliances, phones, and to a certain extent, some furniture, right? I think different cities do it slightly differently, but, generally, they actually do buy batches, and then people can actually be entitled to the voucher, and then they can, with the voucher, buy the IT products, home appliances in our malls.
The one that I showed earlier was the IT segment-
Yeah.
was the beneficiary of consumption vouchers.
That is right.
Yeah.
Which retail categories is not performing well?
Sure. Okay. I think, the supermarket. In fact, that is a category that has suffered, right? Which is why this quarter we announced this AEI is basically to address that, to put in better concepts. In some cases where the supermarkets are oversized, to take back those space and introduce other users for those spaces besides supermarket. That is one of the key legats, I would say, in terms of the unseals.
Okay, thanks. Last question from me. Percentage-wise, how much is your tenant list exposed to the U.S., and, yeah, if that's okay, is able to share the name?
We don't even have a percentage because I think I shared it's very minimal, right? Retail malls, basically, I cannot think of any real tenant who import anything from the U.S. and try to sell to the China market. Even the international brands they produce in China or Southeast Asia, and that's particularly in our retail malls, which is basically a mid-market retail mall, right? There are no luxury items to speak of, right? Then for BP again, very minimal. For example, Xi'an and Guangzhou are very domestic operations serving local enterprises, and therefore, can't talk of any U.S. exposure. Ascenda Xinsu, I mentioned there's a handful of them, right? Which are doing manufacturing, and have some exports to U.S., right? But they are handful, right?
And with this Ascenda Xinsu portfolio that we're talking about, we have also surveyed the tenants who are expiring in 2025, and they say they are committed to continue to stay in our portfolio.
Yeah. By the number of tenants, we are talking about handful out of 3,000-
3,000, yeah.
tenants that we have.
It's very, very small.
Yeah, it's very, very small.
The percentage will be, I think below one. I don't know.
Generally, we also don't really name the-
tenants.
for the obvious reasons.
Yeah.
Yeah, thanks. That is all for me. Thanks.
Thank you.
Yeah, well, can we have [Wong Wei ] please?
Hi. Just three questions for me. The first is, with the C-REIT, that means CapitaLand China Trust will be looking to reduce exposure to retail. Is this something that is going to do more for? For now, you have 71% retail, close to 30% in business parks and logistics parks, even though retail is outperforming, I think the other two. That is my first question. The second question I have is, what do you think about the perpetual that is callable this year? When the reset comes, I think most likely the distribution rates of that perpetual will move up significantly. Of course, it depends on where the interest rate environment will go towards that time. By this juncture, do you think it makes sense to redeem, given the current kind of rates environment? My third question is regards to gearing.
What is an optimal level for gearing, actually?
Okay. Maybe Joanne answer the second question first.
Yeah.
You can answer the third one.
I think the perks that is due to be called is actually in October. I think we are watching this space very closely. I think just to give you a sense, I think last year when we looked at it was really at a high level of close to. It is probably at a five-hander. I think this year we are looking it at more like a four-hander kind of levels. I think we will not do early because I think we cannot call early also, and it will also have a lot of negative carry for us. But rest assured that we are watching this space, of course, when it is closer to it and it is very opportunistic and the rates are right, we will do something about it. Yeah.
Okay. Let me take the earlier questions. For the C-REIT, it is a good initiative. It is a strategic thing for us. It actually is aligned with what we have been doing over the years, which is really to position ourselves to be a diversified, multi-asset class, China-focused REIT. When we started investing in other sectors outside retail, we actually have already sort of started that process that eventually we may have different asset class in the portfolio beside retail. Now, to the question of whether it means that we will have no more retail investment, I think that is not correct. Because the reason why we are also divesting in CapitaMall Yuhuating is because it is already a mature mall. We held it for many years. We have done AEIs on it.
We believe that we extracted the full value from it, especially with, again, our supermarket revamp and AEI that was done in 2023, which had good results. Typically, after you do AEI, the NPI would have shined through in the next few years. If you feel that there is not much more you can do on the assets in the midterm and the asset has been reviewed for a few years, actually a good active REIT manager should consider what to do with the asset, and one way is to unlock the value. With that, if you do more of the unlocking of value, you have more financial flexibility to reinvest in other assets. When we reinvest, we could always go for some good retail assets again. Of course, we want to look for stuff that we can continue to be able to add value.
Yeah, so that we can continue that value creation trajectory. Third question is with regards to the-
Gearing, what is your optimal level for gearing?
I think the popular wisdom in the space and also within the CLCT family is we try to keep our gearing at about 40%. That is still something that we will seek to achieve over the midterm.
Okay. [ Wong Wei] , we hope we addressed your question.
Yeah, thanks a lot.
Thank you. We have a question from Joy, HSBC, that sent in two questions. She would like to ask about the CapEx for the AEIs this year and number two, the chances of gearing going above 45% given current FX rate. Yeah.
Maybe You Hong can take the first one, I can take the second one.
Sorry.
The CapEx that is for three AEIs, how much is the CapEx?
In fact, we only have one, Wangjing, having the CapEx. The other two are actually carried out by the tenant themselves, and it is a replacement, and actually, we reap the benefit of those works, and some would be in the form of sharing of their upside. The CapEx for CapitaMall Wangjing is-
SGD 20 million.
in the region of RMB 20 million . That's not a big one. Yeah.
Yeah. Okay, so we answered that CapEx for AEI, and then also-
Forex.
Forex, yeah.
I think that everyone will agree that the Forex situation is quite volatile, so quite difficult for us to forecast. We are now about 42% gearing. There's still some space before we hit 45%.
Rest assured, this is not a level that we want to go towards. We will control that gearing level.
Okay, great. Do we have any last questions? Okay, if we don't, thank you so much for joining us today. If you have further questions, please feel free to reach out to me. Thank you, everybody, and have a good day.
Thank you.
Thank you. Bye.