Welcome to CapitaLand China Trust 2024 financial result call. I am Nicole, IR of CLCT. I have with me today Gerry, CEO, Joanne, CFO, and You Hong, Head of IPM. Thank you all for joining us today. For the next hour, we will start with a brief presentation to provide an overview, followed by a Q&A section. Once the presentation concludes, we will open the floor for questions. If you have a question, please just use the raise hand feature, and I will pass on the time to you. I would like to hand over the time to Gerry. Gerry, please.
Hi, I am Gerry, CEO for CLCT. Very happy to have our analysts and media friends online with us today. Wishing everyone a happy Chinese New Year. Let me start off by recapping what our portfolio consists of currently. CLCT is predominantly retail at 71% across rental income. These are bread and butter malls which are resilient in this cycle, and new economy assets, business parks and logistics, which are more exposed to business and trade formation. All these asset classes represent different ways to capture the policy and economic transformation that China is going through now. Retail positions to benefit from government initiatives to boost domestic consumption. Business parks and logistics align with China's drive to grow its technology and innovation sectors. Logistics is also influenced by international trade growth. Moving on to our full year financial results, I will give some key highlights.
Overall, our results reflect steady and strong performance from our largest asset class, which is the retail portfolio, and it is driven by our AEI assets. The market for BP and log assets has been relatively more challenging, offsetting our retail performance. There were also some portfolio events from 2023 that influenced 2024 overall performance. In 2023, we did a round of AEIs involving supermarket spaces to uplift some of our older malls, Rock Square, CapitaMall Yuhuating, and CapitaMall Grand Canyon. Those AEI malls have shown good results this year. We also ceased operations in underperforming CapitaMall Qibao and divested CapitaMall Shuangjing at an attractive exit yield of 2.8%. These actions strengthen our overall asset quality and balance sheet.
Full year, our portfolio revenue dropped 3.9% and NPI dropped 5.8%, mainly due to business park and logistics, which had lower occupancies, rents, and discontinued property tax incentive for the Hangzhou business parks. Our divested and discontinued malls also impacted results. Without that effect, performance would have dropped less, revenue would have been minus 2.2%, NPI would have been minus 3.9%. Our AEI malls, Rock Square, CapitaMall Yuhuating, and GCM, led the resilient performance of our retail portfolio. As they have increased their revenue by 8.7% and NPI by 13.7% year-over-year. ROIs for these AEIs are blended at about 14%, which is well above our cost of funds. On the other hand, the market weakness in some of our BP and log assets has affected their occupancies.
We shared in previous quarters that the Xi'an BP, that is an asset called AIT, had a major tenant relocating to their own premises in Q3, reducing occupancy from 90% to 72%. We are actively sourcing for replacement tenant there. Our Shanghai Fengxian Logistics Park asset, which has been vacant for a year in 2024, had affected income contribution for that year. We have effectively addressed this going forward by securing a master lease tenant for an eight-year lease in December of 2024. Despite the challenges, what is pleasing is that overall occupancy across the three asset classes went up compared to Q3. To mitigate the NPI reduction for 2024, we have also looked at property expense savings, so we are focused on it.
If you look at our property expense savings, we actually saved 2.7% year-over-year if we exclude the discontinued property tax incentive for Hangzhou BP. There were other one-off expenses in 2024, which are related to tax consultancies and outsourcing related staff optimization. Excluding all these one-offs, our property expense savings would have actually improved to -4% year-on-year. We also made a lot of efforts in terms of reducing our finance costs. Our net finance cost savings is 7.1% year-on-year, and we have benefited from the lower floating rates, lower cost permitted bonds that we have issued, and debt reduction from our Shuangjing sale proceeds. DPU wise, our full year DPU is SGD 0.0565 , and that is 16.2% lower than 2023's SGD 0.0674 .
That is impacted by the NPI drivers we have spoken about, FX, as well as offset by lower finance costs. This works out to a trading view of 7.7%, an attractive level. Our second half DPU is SGD 0.0264 versus last year of SGD 0.03 , which is a 12% drop. This is compared to first half year-on-year drop of 19.5%, so you can see that there has been a narrowing decline in our second half results. Next, I will go to our three asset classes and discuss them in more detail. If you look at our retail assets, they held up really well and have been resilient. Retail revenue on same store basis is up 0.9% year-on-year. Pardon me. Retail sales and NPI on same-store basis is up 1.9%.
Our retail malls have a high occupancy of 98%, which is about the same levels at 2023. Majority of our malls showed an improvement of same occupancy year-over-year, except for CapitaMall Xinnan, which is one of our smallest and weakest malls. Four malls, CapitaMall Qibao, Rock Square, Xuefu, and CapitaMall Nuohemule, are effectively fully leased. Traffic grew 8.7% and tenant sales 2%, led by our AEI malls . Overall, tenant sales are now at par with pre-COVID levels. Our occupancy costs are also at healthy levels below pre-COVID range of above 30%. Having said that, retail operating metrics have moderated in line with weaker consumer confidence. China's overall retail sales growth in the third Q dropped to between + 2% to 3%, which is the weakest since COVID passed. China's fourth Q retail sales rebounded in October, which coincided with initial government stimulus, but has since moderated.
If you look at our own portfolio, our fourth quarter traffic and sales growth, the trend of slowdown can also be seen. In this environment of subdued growth, getting rental increases for our retail assets has been challenging. That affected our retail reversions, now slightly negative at -1%. The Chinese government has taken note of the weak consumer confidence, now a key focus of their stimulus program. We expect the government to continue to take policy actions and stimulus to boost domestic consumption and household income over time, and that should benefit the retail sector directly. What CLCT can do in the meantime is to drive performance through AEIs. If you look at our recent successful AEI from 2023 with strong ROI, traffic and sales growth, you will know that they have all been supermarket-related.
The success of these AEIs validated our view that reconfiguring large format supermarkets are an opportunity to boost sales. We have done smaller reconfiguration in 2024, and we will look for more opportunities to unlock value from supermarket and anchor space in 2025. I will speak a little bit more about it later. Next, moving on to business park and logistics park. The business park sector generally face weaker demand and ample supply.
Our business park overall occupancy is at 87.6% for year-end, compared to 91% from a year ago. The drop mainly due to Xi'an Ascendas Innovation Place and Hangzhou cluster assets. However, if you look at our occupancies for our business park assets, they are generally outperforming their sub-markets. In Suzhou and Hangzhou, we outperformed the market, particularly in Suzhou, by a substantial amount. For Xi'an, the Ascendas Innovation Place asset, we have a major tenant relocation to fill.
Hangzhou Phase I and II, we see higher lease turnover with new leases signed, offset by non-renewals and pre-terminations. Compared to Q2 though, the combined cluster for Hangzhou had actually improved occupancy to now above 80%, but rent levels remain challenging with excess supply in the market. Since then, our strongest BP asset continue to be stable and well-performing due to its strong market position as one of the primary Singapore-led business parks. Logistics park, which is the smallest part of our portfolio at about 3% of GRI. The market in China for logistics has been tough, with low demand and oversupply issues. Average vacancies of 20%-30% in many sub-markets are common. We prioritize occupancies in this market for 2024, and happy to share that we have managed to stabilize the logistics portfolio by this year-end.
The Kunshan asset, which had some vacancy, was fully leased since third quarter of 2024. Chengdu assets have also improved to over 90% from 68% occupancy a year ago. The best piece of news, I would say, came over the Christmas period. We found a master tenant to take up 100% of our Shanghai Fengxian Logistics Park asset under a long-term lease of eight years. With this lease, our overall log occupancy at year-end is 97.6%, much higher than 82% a year ago. While we stabilize the log portfolio, logistics will still be a tough market in the next two years, unable to deliver growth, so we will continue to explore proper reconstitution for log assets where possible. Let me provide further color on leasing and reversions of each asset class. Retail leasing-wise, our retention is 54%, higher than 2023 and in line with historical.
While reversion for retail is about -1% due to the subdued consumer sentiment. Renewal leases have positive reversions, and the new leases have negative reversions because we want to pull in new tenants to refresh our malls. If we exclude the poorest performing mall, Xinnan, reversions would have been + 0.3% instead of negative. In terms of leases, F&B leads executed leases. This reflects evolving consumer needs and we continue to secure new F&B tenants with positive reversions. Their reversions come in about 4% for both new and renewal leases. The F&B share of retail GRI has increased to 38.4% from 36.8% a year ago. Among the key trade caps, tenant sales are strong for F&B at + 9%, services + 14%, and IPM about also + 9%.
These tenants are geared towards local cuisines, local brands such as Luckin, Tianzi, and Huawei, Oppo, and local EV car brands for the services category. Growth has also been strong for smaller categories such as gifts and souvenirs and value stores , and those growth are quite strong at positive double digits. This reflects the current consumer preference for collectibles and value purchases. Toys and collectibles collaboration and events have also helped our malls draw large crowds due to their popularity. We have included a slide 38 of the presentation, where you can see some of those collaborations and pop-ups and events that are related to toy and collectibles. For the larger trade cat, large format supermarket. These are the supermarket that are 9,000 sq m- 10,000 sq m, has been the biggest laggard. In some cases, over 2024, they have seen big drops of 40%.
We see small weaknesses in fashion, beauty and health, and jewelry at single digit drops for sales. If you exclude the poor performing supermarkets, there are a few of them, tenant sales would have improved further to + 3.4% for our retail portfolio from the +2% that is in the slides here. Therefore, we are focusing on those poor performing supermarkets for our next round of AEI opportunities. Next, for business park, we see an increase in electronics engineering ICT sectors for our leasing, which reflects China's push for technology and innovation. Over the last one year, these sectors grew about 1%-2% as a percentage of the BP/LP's gross rental income. Business park retention rate is healthy at 65.8%, in line with historical. Same store occupancy is 96.6%, indicative of its strong market position and continues to attract MNCs as well as domestic tenants equally.
Xi'an BP, the cluster occupancy is at 76.7%. As mentioned, tenant relocation to AIT, its occupancy is at 71.8%, but the other asset, AIH, performs relatively better at 89.6%, particularly popular with electronics tenants. Hangzhou overall occupancy is 80.1%. It experiences high tenant turnover due to the business condition and new supply. Tenant retention is at 50%, and to drive occupancy, more tenant incentives are probably needed for this asset. Although overall BP reversion is at -4.5%, our crown jewel asset in Suzhou, the Xinsu portfolio, continue to perform well with 3% reversion. For logistics, our new leases are more than renewals, revealing a high degree of churn. Logistics and supply chain management is the largest category of tenants, and their business is affected by the international trade situation. As a result, the general market reversions are more than -20%, and our reversions mirrors the general market.
Given these conditions, being able to fully lease out Shanghai Fengxian on the long lease and also substantially be leasing the whole logistic portfolio is a good outcome for the year. Because of the Shanghai Fengxian lease, our WALE for log asset also improved to 2.6 years from 1.4 a year ago. Moving on to portfolio valuation. For the full year 2024, we are down 1.7%. There has been no significant cap rate movement.
We took some loss already in first half 2024 for our log assets. For year-end, retail took some impairment for the smaller and weaker assets. Business park loss was on Xi'an and Hangzhou, which had experienced demand supply issues, which I mentioned. We also cut log a little bit more to end the year at -9.9% for log compared to a year ago. In terms of sustainability, CLCT continued to make good progress on our sustainability goals.
We achieved 5-star rating for GRESB for the second year in a row. In terms of green certified assets, we increased our proportion to 60% from 36% last year. We also bought more renewable energy in 2024, currently at 10% of our electricity consumption. Next, I will move on to capital management. I will touch on it briefly and let Joanne cover it in detail. Our gearing, we have maintained our gearing at 41.9% and lower our cost of debt. We are committed to working towards increasing our natural hedging, and aim to take it to 50% in 2025. The renminbi rate relief cycle has started, and we want to take advantage of these low rates in China now. One of our success story is in 2024 when we issued the CNH 400 million three-year bond, which was at an attractive rate of 2.9%.
Joanne, I will let you take through the capital management part in detail.
Yes, thank you, Gerry. Hi, everybody. Happy New Year. I think Gerry has actually touched on in terms of our financial highlights. I think this slide gives you a better picture in terms of the key line item that we have. Overall, our gross revenue and NPI has felt but largely impacted by business park and also some of the one-offs that were taken in last year but not registered. Essentially, I think that from this slide, our DPU is SGD 0.0264 for full half, and full year will be SGD 0.0565 . Our balance sheet as at 31st December is at SGD 1.12. The drop in terms of the NAV is largely because of the devaluation that we have taken in for the investment properties as at 31st December. But actually, in fact, the FX rate has not significantly impacted for this current period of NAV.
We touched on in terms of the gearing. Gearing is still healthy at 41.9%, notwithstanding that the IP valuation has actually decreased by 1.9%. This quarter, vis-à-vis last quarter, I think we saw a softening of our renminbi against Singapore dollar. Hence, that has actually helped to mitigate the gearing. Overall, our cost of debt is 3.51%. I think this is generally still okay, because we have actually taken into account the favorable rate that we have for the CNH 400 million that we issued in October at 2.9%. Of course, in 2024, we have also the proceeds from Shuangjing, which we'll use that to actually reduce our principal amount, and hence in terms of cost of debt, we also have some improvement from that. As what Gerry has mentioned, we continue to improve our natural hedging.
As of 31st December, our renminbi denominated debt has actually increased to 35% of our overall debt. In terms of sustainability, also pleased to inform that this year our percentage of the loans has, in terms of sustainability, has also increased from 31%- 42%. In terms of our financial metrics, you can see, gearing, as I mentioned, 41.9% still holding well, despite the drop in terms of our IP. Average cost at 3.1%, slightly better than last year. I think we see that in 2025, this should be the kind of level of cost of debt that we're seeing unless, we manage to push through some initiatives to bring in more renminbi loans. With those initiatives, I'm sure that we'll be able to reduce this cost of debt for 2025. Interest coverage ratio is also healthy at 3x .
For this year, this time around, I've indicated the ICR, which includes the perpetual, and even with that, it's actually at 3x . I think ahead of what MAS has required us to produce, this time around, we have indicated what is the impact in terms of sensitivity analysis, for the interest rate rise. At every 100 basis point increase on the COD, in fact, our ICR will be capped within at 1.8x . It will be at 2.4x . In terms of EBITDA, 10% decrease will bring our ICR to 2.7x , which is still well within the 1.8x prescribed by MAS. I think the rest of the sensitivity here that you can see, we also usually show the Singapore dollar loans floating rate, if there's any hike in terms of the rate.
At this 50 basis point, I think the impact to DPU is about SGD 1.1 million. On the flip side, we are seeing that the easing interest rate from renminbi won't be benefiting to CLCT, and in fact, the proportion of our RMB loans vis-à-vis the Singapore floating loan is actually higher, as you can see. If we expect a 50 basis point reduction in terms of LPR, we should see a higher savings vis-à-vis the 50 basis point Singapore floating rate increase. Overall, we still maintain a high hedging. As of 31st December, we have actually hedged 68.6% of our two half undistributed income. In terms of maturity profile, I'm glad to inform that the SGD 200 million due in 2025 in February, we have already refinanced this portion, and this will be extended to 2030 and 2031.
In fact, we have actually refinanced them at a lower margin, despite the increase in SORA in terms of the base rate. In terms of the, on the right side, you can see the pie chart. I think we are very well diversified in terms of funding sources. Over the years, we have increased more and more renminbi denominated kind of bonds. We have issued FTZ bond in 2022 and then 2023, and then 2024, we issued a CNH bond. Furthermore, I think we also increased our CCIRS in order to bring more renminbi onto our balance sheet vis-à-vis the Singapore debt that we usually have. Overall, our [peak floating] is at 36% over 24% floating, which I think is quite a good level that we are hitting right now. Okay, in terms of distribution details, this is just more for logistics for you to take note.
Our last day of trading cum basis is on 12th February, and ex-divi will be on 13th February, and the distribution date is 27th March. I think with that, I will pass on back to Gerry to give you more insights in terms of the portfolio overview.
I will go straight to a roundup of our strategy for the year ahead and some outlook. CLCT's strategy is to build a diversified portfolio to capitalize on China's domestic consumption growth and innovation-driven economy. We will create unlocked value through portfolio reconstitution and resilient acquisitions, AEIs, and proactive capital management, which Joanne has elaborated. For AEIs, I would like to highlight again, our track record of successful AEIs. This will be an important avenue for us to grow revenues while waiting for domestic consumption to recover. Our 2023 AEIs on supermarket anchor spaces achieved a leveraged ROI of 14% after an initial period of downtime. While identifying opportunities to unlock more value from such AEIs, in 2024, we did some smaller reconfiguration with good effects. Our next batch of bigger AEIs in 2025 has been identified. They involve unlocking value from lower-performing supermarket space, which I have mentioned earlier.
The first one that we are unveiling is CapitaMall Wangjing, where we are converting a large old format BHG supermarket space into a smaller new concept supermarket, complemented by trendy retail and F&B outlets to enhance our product offerings and shopper experience. Some downtime is expected, but we expect double-digit ROIs once it is open from 4Q 2025. We will have a few more such opportunities, so please look out for them in future quarters.
While we focus on unlocking values from our assets and capital management, a big catalyst, of course, is the macro environment and policy stimulus. The Chinese government is focused on achieving a GDP growth of 5% for 2025. Multiple government announcements signal their commitment to stimulate its economy. Domestic consumer demand has become a top government agenda. Some direct consumer support has started to flow, including trade-in programs, consumption vouchers, and salary increases for civil servants.
Property and stock market are being propped up with various policy adjustments and measures. The People's Bank of China has also moved into loose monetary policy mode, and we expect further cuts in 2025. All this fortify our belief that we are at the start of the policy stimulus cycle, and 2025 should expect to see more support from the government given to the economy. As for CLCT, we will position ourselves in the best possible manner to capitalize as China recovers. For retail, our outlook pretty similar to 2024. We see stable to maybe very small negative reversions because of the subdued consumer spending, but with strong occupancies for the retail portfolio. We are well-positioned for a retail portfolio when domestic consumption grows with direct consumer stimulus. Our proven track record in AEI will also help us in the meantime to enhance the resilience of our retail assets.
For business parks, the business climate remain cautious and some submarkets may continue to face pressure. We expect negative single-digit reversions. We will also see some NPI weakness with the difficult market in Hangzhou and Xi'an and the extended backfill that we have for AIT assets. Our portfolio leans towards innovation-driven sectors, including electronics and technology for our business parks, which government policy signal stronger support. We will focus on these policy-aligned areas to better position our assets. For logistics, demand and supply issue will make it challenging for many submarkets in the next few years. We are thankful that we have managed to stabilize our own logistics portfolio. This sector is still exposed to geopolitical risks and trade uncertainties, and we see smaller negative reversions for our portfolio compared to previous years.
We will continue to review portfolio reconstitution options for log assets when there are opportunities, but certainly we are committed to maintain a high occupancy for them. Finally, we will also step up our efforts to reduce risk, diversify both our assets and debt base, and improve cost of funding by doing more renminbi-denominated financing. With that, I finish my presentation.
Thank you. Thank you, Gerry, for your presentation. Now let's proceed to the Q&A segment. I can feel the enthusiasm of the participants online already. We have the first question from Terence. Terence, can I pass over the time to you, please? Terence, JPM , yeah. Thank you.
Thanks, Nicole and Gerry. Can you hear me?
Yes, very clearly.
Okay. Thank you. Congrats, Gerry, and Happy New Year. Just wanted to ask, given that you are in this new role, I wanted to ask how you see the strategy going forward. You have mentioned a little bit about portfolio reconstitution, especially for log, but how else would you look to change the assets? Would you look to also divest some of the underperforming malls? Do you see any opportunities for perhaps looking at other sectors or other geographies? Maybe you start there.
Yeah. Thank you. I think besides the logistics park, which I've mentioned, there are some other weaker assets in our portfolio. Xinnan has been something that's been highlighted before. Certainly if there are opportunities to recycle them, that is something that we are looking at. We have indeed put some of those weaker assets and focused on them to see whether we can recycle them. That's one thing that we are doing. The other thing that we're doing is there may be some assets, even in this environment, that could be quite sought after. In those cases, we may think about getting new partners to give us a little bit more liquidity. As you talk about acquisitions, with the new liquidity, of course, I would like to look at new acquisitions, maybe not immediately, but when we have the liquidity, right?
We will be focusing on the more resilient sectors of China. Right now, from what we see, core retail seems resilient, looking at our experience with our own retail portfolio. For business parks, the industrial sector of business parks is resilient. That is two examples. We may eventually also look at other jurisdictions within our mandate. Our mandate, as you know, besides mainland China, we are also allowed to invest in Hong Kong and Macau. If there are resilient assets in those countries, we will also look at it.
Thank you. That is very encouraging. Maybe I can focus a little bit more on the, let us say, business park. You did mention that AIT continues to be a bit challenging. We also have seen some declines. Actually, occupancies are relatively lower in the Hangzhou also. Maybe you could focus on these two sets of assets and walk us through the backfilling or potentially if there is any potential weakness coming out from there for this year.
Okay. Maybe the AIT asset, which I think we have already explained about the pretermination of a large tenant. That is from the third quarter of last year. We have been looking to fill that tenancy. Last year, we had one potential tenant coming in, but that has been delayed. Some decisions have been delayed on that part. We currently are looking for more alternatives, so that we do not need to wait for that potential tenant that we were engaging with last year. There are a few leads, and I think we feel good that there are at least a few leads that we can work on, to basically ramp up the occupancy in AIT in 2025. That is for the AIT. For Hangzhou, the whole cluster there, basically the Hangzhou market has quite a bit of supply.
What we experience is we are signing a lot of leases, but a lot of tenants are also exiting the market. You can see that our occupancy actually does not move that much. It is about maybe 80%, then some offices below 80%, and then we try to push it back above 80%. It does not mean that we are not doing anything, but we are actually signing a lot of leases, but there have been some drops out. We will continue to work on Hangzhou clusters by trying to reach out to more tenants. We may have to take more revisionary rent losses, rent drops, in order to attract rent. We are looking at some of those incentives that we can use to entice tenants to come in.
Thanks. Maybe a final question from me. You did mention that we are looking at about 50% natural hedge for this year. In terms of financing cost, what is the outlook for financing cost this year?
Joanne?
Yeah. I think just like I mentioned, if we do not do anything right now where we are seeing in terms of our cost of debt, I suppose 2025, I am expecting this kind of level of cost of debt. Of course, with any initiatives that we are able to execute this year, panda bonds and whatnot, it will definitely bring down the CLD from what I am seeing right now at this level, to below 3% overall.
I can share that actually, we are certainly looking actively at the RMB bond market. That includes panda bond.
Yeah.
That includes—
Any other form of RMB.
—any other form of denominated bond, dim sum bonds, for example. Yeah. And those rates are actually quite attractive currently.
Yeah.
But it takes some time. Panda bonds requires regulatory approval. Dim sum bond, maybe more market-driven, but there is also windows where we can and cannot do it. So we will be working very hard this year to make sure something gets done.
Sorry. Maybe just to clarify, can I get a sense of how much lower the, let us say if you take a panda or dim sum bond versus a signal, the fixed rate there?
I think if you—
Okay.
—If you look at the three-year fixed rate margin of, let's say 120, 130, plus another swap rate of another 2.5%, that will bring you to close to 4%. But the recent CNH bond that we have done is actually 2.9%. This is the kind of deflation that you're expecting to see.
It'll be in two handles.
Okay.
It'll be in two handles.
Okay. That's great. Okay, thank you. That's all I have. Pass the time on.
Thank you. Thanks, Terence. Can I now pass it to Terence from UBS?
Hi, this is Terence from UBS. The weakness in the logistics segment has been ongoing for a while, and certainly longer than the WALE period already. Has all the rents been rebased to market rates as of now? Also, is it the expectation that market rents will not see another big step down one leg further?
I think generally, our rents have been marked to market over the course of the last two years. You can see the reported inversions, there's been quite big changes. Going forward, as I shared, the market is still weak. I cannot say that there will be no negative reversion because the whole market is weak. We will probably track the market. Because we have already marked down our rents to pretty low levels, the level of negative reversions will not be of that magnitude of previous years.
Okay, got it. If you can help us understand what was the effective FX rate that was used in 2024? Because if I just look at how the rate has moved from start to end of year, it doesn't seem to have moved much. I'm trying to figure what's the continuing or the lag impact of this FX and also at current levels, where does the hedge rate stand versus the spot rate currently for us to understand the ongoing impact going into 2025?
Joanne, you can answer.
Okay. Yeah. For the translation rate that we have used for our reporting, for 2024, as an average rate is 5.38. This is base 5.243 last year. It has been weakening of the renminbi by 2.6%. Obviously, for the balance sheet, we have used another rate which is at 5.391 versus 5.366 last year. I think if you were to see how we have tried to figure our book, these are the two rates that you'll be using.
To your question as to what is the outstanding rates that we have on our hedges, I think it is around 5.39, 5.4-ish account level, because that was the level that we have entered previously. Obviously now we see that the rate has actually softened. We will continue to look at when we will lock in the levels and this level will just continue to move and we'll just keep on averaging, we'll get into the averaging out in terms of whatever we have on the hedge out there. Yeah.
Got it. I know it's probably not a fair question to you, Gerry, but I think a few years ago, in 2022, especially during the listing of C-REITs, I think the business park portfolio actually saw a 12% valuation increase. In 2024 as well, I think there was some logistics C-REIT IPO, I believe at a tight yield . My question is, did the valuers not take this into account to support the, I guess, valuations for your logistics assets? I get that there are some stuff on the market on sale, but I think the valuers have typically, or at least the narrative is that valuers do not tend to pay much regard to distressed assets on sale. How should we think about this now?
I think if you look at the valuations, the cap rates didn't really shift. If you take that as an indication that certainly valuers did not take into account some of the distressed sales that we have read in the news. That's number one. The C-REITs have proven to be quite a good indication of the current market levels of basically transactions, because it's been growing. I think that perhaps would have gone into the valuer's mind when they decide whether to shift the cap rates or not. So they have kept it pretty much unchanged. What really affected us, as I shared, is some of our asset specific issues, the weaker retail malls, for example, and of course the business parks. Some of them occupancies have dropped. The outlook is a little bit poorer because of the supply situation.
So it's really on the NPI and outlook that affected our valuation. Not so much cap rate shift.
I think the valuers have definitely looked at both the capital market as well as the C-REIT for referencing where the cap rates would adopt, like what Gerry has mentioned. I think, in this cycle, they have not really shifted much. I think that's also consistent generally with what we are seeing. What you have mentioned in the previous round of business park, I think there was, because of the timing that the C-REIT come in, the business parks could justify cap rate compression from a more illiquid asset class to a more liquid now, given the market development. So I think that's what happened back then in 2022. But, I think this round valuers have taken in both the market development as well as the wider market.
I think that is where it is, which I think when in our discussion with valuers, we always ask about all these questions as well. Thank you.
Okay. Thank you. I will join the back of the queue. Happy New Year, nonetheless.
Thank you. Thank you, Terence. Can we pass the time on to Geraldine, please?
Hi. Good morning, Gerry and Nicole.
Morning.
Happy New Year.
Happy New Year.
Yeah. Can I just ask, Gerry, on your thoughts about share buyback. Do you like it or do you believe that there are better avenues to channel funds? If you were to consider buying back shares, when will be a good time?
I think at this moment, my immediate focus is on stabilizing the portfolio. If you look at our gearing, it is above 40%. It is probably not the best time to embark on large share buybacks that will shift the market, because that will certainly tap on our gearing capacity. With that in mind, I think in the next few quarters, I probably will not be in a position to do so. Of course, as we look at our portfolio, if we have big portfolio actions, big reconstitutions, and that gives us excess liquidity, then we can certainly look at it again.
Okay, thanks, Gerry. If you were to do a divestment, then potentially you might consider buyback shares.
It has to be a big one. That allows us to manage both gearing and some buybacks.
Okay, understand. A quick question on the cap rates. Were there any change in the cap rates across your three asset classes?
You Hong, do you have the details for the cap rate? I don't think so.
Yeah, no. I think we don't see any major movement in the cap rate. In fact, I think with the exception of changing valuers, where I think they have sort of adopted a slightly different approach. But I think where the valuers have stayed the same, I think the valuer, the cap rate for the property has stayed the same.
Okay. Got it. Yeah. Maybe a quick one on the retail reversion. There was a note that said that the new leases were signed at - 4.3%, which is below the average reversion for retail at minus 1.1%. Is it the case that these leases concentrated within your weaker assets, such as Xinnan? Are you giving a little bit of discount to stabilize the occupancy rate? Yeah. If you're able to share on that.
You Hong?
Yeah, sure. From an asset point of view, I think definitely we have more assets with a positive reversion than negative. You are right that the weaker sets are mainly Xinnan and some of the other, I mean, one or two smaller ones that actually we do see more negative reversions. Having said that, I think it's not necessarily the new within our malls, you can appreciate that every year we have 80, even more than 100 leases for the bigger malls. So there is also a spread of reversions. So even within the same malls, we actually do have a great need to bring in new tenants to refresh some of the tenancy brands and to weed out some of the not-performing tenants by sales or by occupancy costs. That will inevitably lead to certain negative revenue diversions.
I think in the better malls, we are able to balance it out with the renewal, with the ability to bring some of the newer tenants, even also with positive reversions. So I think that overall, it's hard to say whether all the negative reversions are in one asset or two assets. It's not generally the case. I think it's spread out, but there are certain trends for malls. Yes, you are right.
Okay. It won't be the case that the new leases are seeing any form of softness in rents?
For the weaker asset, obviously, I think You Hong shared, for example, Xinnan. We need to bring more new tenants. Obviously those have contributed quite a bit in terms of negative reversions to bring them in.
Okay, thanks, You Hong and Gerry. Maybe I'll go to the back of the queue.
Thank you.
Thank you, Charlene. Can we pass the time to Ada from OCBC?
Hi, Gerry and team. Happy New Year, and thank you for the presentation. Just some questions from me. Firstly, I am very glad to hear that Shanghai Fengxian has been leased out. Wondering if you are able to share on the rental reversions clocked there and whether we are expecting any sort of CapEx or fit-outs for this tenant. Secondly, in a related vein, we are seeing actually quite a sizable number of leases coming due in 2025 for the logistics parks. You did mention that CLCT will look towards portfolio reconstitution given the continued challenging market. Was just wondering how would you balance between maintaining occupancy and divesting at a reasonable valuation? Where may you look to redeploy proceeds in terms of the different sectors? Thank you.
Okay. Maybe on the lease for Shanghai Fengxian. The reversion there, in line with what we have talked about in market reversions, that will be more than -20%. In order to bring someone in to fill the whole asset, we also have to give such reversions against whatever currently we have been leasing out for that space. That is one. Definitely we lowered our rent to attract the occupant. When they come in, they will have a period where they are doing some renovations.
Yeah. In terms of CapEx, I think we do expect certain CapEx. This will be shared between the landlord and the tenants. Both, I think in terms of a long lease, it is quite typical, I would say. The fact that the tenants are actually putting in CapEx also increase their stickiness.
Correct.
I think that is generally the view.
It is not a huge amount. In the first place, it is not a huge amount. But it is good that they are putting in CapEx, yeah. That would allow them to be committed and be sticking to the lease. The other question you asked about reconstitution, I believe, and after reconstitution, where CLCT will be looking at?
Yes. Also, how will you balance that with maintaining occupancy for the logistics parks? Because there is quite a number of leases that are coming due next year.
Okay. The logistics lease?
Yeah. I think the fact that we are a listed REIT and we need to distribute income, I think we definitely would still prioritize the occupancy. We would not want to leave it empty just so that we can sell it, because in this current market, any sale is not, I would say, easy. We will also need to evaluate that option, whether the pricing and everything is indeed bring the value or better for the unitholders. Having said that, in negotiating the lease, we will be cognizant that there is a possibility of reconstitution. We will try to obviously have the flexibility of doing so. I think that is, as always, part and parcel of our asset management and leasing strategy. I think that is not different.
Just to give a little bit color. For example, the Shanghai Fengxian lease is an eight-year lease. But we have also negotiated for some termination options. So that enables us to move if there are some better options come available. For example, the rental market move up or there is a buyer that may be able to buy this asset. That is one point. The second point is when we engage with this current master lease tenant, one of the attractive parts about this tenant is that they actually are buying it for their own. Sorry, actually leasing it because they like the asset. It is a standalone asset where they can control the whole site. And it is in a good location near the port. And they are also one of the top three top logistics player in Shanghai.
And they are indeed looking for more assets actually to buy for their own end use. So, in a way we are in fact setting up a position where it could potentially be a lease-to-buy situation for this tenant.
Okay. Thanks a lot. That is all from me. Thank you.
Thank you. Thank you, Ada. Can I pass the baton to Jessie from BCA?
Hi. Thanks, Nicole. Thanks, Gerry. Congrats on your results. I kind of want to also ask about the logistic park performance, because I understand that in the past financial year, reversions were, I mean, it was 24.5%- , right? With the current Trump administration and the announcement of tariffs, what is your take on how this might affect CapitaLand China Trust and its portfolios? Because I can imagine, the logistics sector, if it was already affected by global price issues and low demand, I'm not sure how that would pan out for the coming year. Thanks.
Maybe I can chip in to add a bit of color on our logistic portfolio and the tenant profile that we are attracting. With the exception of Shanghai, which actually is indeed nearer to the port, as well as some of the Tesla manufacturing facilities, which is a bit of a specialized. The other three, namely in Kunshan, Wuhan as well as Chengdu, they are actually servicing more of the domestic consumption as well. So in a way, for example, there will be the 3PLs or the suppliers for the, I would say like 7-Eleven kind of a chain supermarket stores. We also have JD.com in our two of our properties. So I think these are quite predominantly domestic.
Obviously, they are also in a cycle of trying to rationalize their cost, as well as given the overall market need to be more cautious and also have more options given the supply situation. That's why I think you see the reversion generally is not favorable to the landlord. What I try to explain is actually in terms of the Geopolitics. I are slightly shielded from it because of the fact that our tenant profiles are quite domestic. Yeah.
Okay. I think just to add on to You Hong, I think you pointed out Wuhan, which are maybe more domestic—
Yeah.
—focused. That is a good part, which does offer some protection. But of course, on the other hand, Shanghai Fengxian which is near the port, will be more trade-driven—
Yeah.
—which is why we are very thankful that we secured this eight-year lease. I would say that part has also been de-risked—
Yeah.
—to some extent. Right. Of course, we need to continue to monitor the situation because the situation is volatile. Yeah.
Mm. Okay, thanks. One more question from me. I think you did mention that CapitaLand China Trust might explore portfolio reconstitution efforts for the logistics portfolio. So in the case that this happens, what kind of asset would you think of recycling? What kind of asset would you think of acquiring?
I think I mentioned, for the logistics portfolio, we will obviously see what You Hong said, it's not so easy to make a sale for the logistics asset at this moment. I've mentioned that one opportunity is our Shanghai Fengxian where we are positioning this tenant now as a potential lease to buy option. So that's something that we have made initial steps, right? If things goes well, we potentially will sell. So that's one option. The others, we have to look at what kind of basically the level of liquidity there is in the market at this moment. And of course, if we manage to find some liquidity and sell those assets, as I mentioned, we will be focusing on the more resilient parts in the China economy.
That would be the core retail, the core industrial, and perhaps we may look at geography outside mainland China, but within our mandate, in Hong Kong and Macau, and look at more resilient parts of those areas or those economies to invest in terms of the asset class.
Okay. Can. Thanks, Gerry.
Thank you. Thank you, Jessie. Hi, Derek, can I patch someone to you, please?
Hi, good morning. Thanks, Nicole. Gerry, can you hear me?
Yes, I can. Hi.
Hey, Gerry. Hi, happy new year. I just wanted to ask a few follow-up questions. Sorry if this has been asked just now already. This came from another call.
No problem.
My focus is on your thoughts for 2025, right? You talk about asset constitution, but I'm just wondering whether from a very realistic standpoint now, a lot of people are wanting to sell, and the buyers are vouchers now. So I'm just wondering whether, while this is part of the plan, how realistic you think we will be able to see you selling something? Or the reality is that we should be just hunkering down and just squeeze as much as we can in our portfolio. Yeah, just want your thoughts on this.
Actually, I'm doing both. I'm squeezing as much from the public, number one, which you can see I'm positioning, unlocking value from the underperforming supermarkets, which are good opportunities. I'm also driving the team to reach out to more local partners because the liquidity now is all in the local hands, right? Which is, you rightly point out, it's not as easy as in the past where there are a lot of foreign capital in the market, right? But I'm cautiously optimistic because CapitaLand has been in China for a long time. We are, in a way, a domestically-owned company which the China-owned businesses like SOEs and insurers feel comfortable with working with, right? So when we go there, we can speak to them, and we can maintain a good relationship.
Hopefully, there are some things in our portfolio which we want to sell and they want to buy, and we can strike out a good deal.
I think just to add that we are not the kind of desperate sellers.
Mm-hmm. Yeah.
Which also means that it is not as easy to You would like it is not like any price I will take and then-
I think a very important principle, we will always look out. When opportunity lies, the way I see it is actually we needed to dig deeper.
Because, I think cases like Chongqing, we really, really needed to find that the really, who is actually can see the value in the piece of real estate and can actually pay for its best use. This is where the opportunity can be struck. We are not going to sell the asset in terms of the super high yield and which beginning this, we are actually a yield play . I think that's
We will not sell it below the market use, basically.
Yeah.
It has to be market.
Okay, got it. Sorry. Just one last one from me. Look at the business park and the logistics. I think you have negatively mentioned reversions, but I was just wondering whether at any point in time, is this segment giving you a positive spread on a post tax basis?
Okay. Your line is a little bit affected, but I think I can hear you. I think you asked for the spread for the business park. The answer is yes.
Okay.
We are still earning on a popular basis, a positive spread over our cost.
Okay. How about logistics?
Logistics?
Yeah, logistics. We are probably empty now a bit. I think this is the part that we will have to, like I said, prioritize the occupancy first and see what is the opportunity. If there are opportunities to replace it, and then going to some higher yields, we will do it.
Yeah. In short, it is below cost of debt.
Yeah.
That makes sense.
Okay. Got it. That is all from me. Thank you very much.
Yeah.
Thank you, Gerry. I noted that we are past the hour, but I do want to make sure that we get all the questions in, so we will extend this a little bit more. Joel, can we pass the time on to you? Terence, UBS , I will circle back to you again.
Hi. Can you hear me?
Yes.
Yeah. Happy New Year, Gerry and Nicole. I just had two questions. The first is regarding the Shanghai Fengxian Logistics Park. Could you share if there is any rental escalation or indexation over the next eight years? My second Yeah.
Yes, please.
Okay. Could you share the numbers?
It is a typical two to five. Yeah.
Three to five percent, over which period? Yearly?
Yeah. Yearly.
Oh, it's yearly. My next question is regarding the Ascendas Xinsu business park. I noticed that it's actually outperforming the market quite significantly. You've been able to hold your occupancy above market and quite stable, so at 96.6%, even with positive rental reversion. Just wondering, what's the secret here, and could this potentially be under threat?
I would say that this part is actually, a portion of it is industrial, which helped us, like what you mentioned, is more resilient. Even the, I would say, R&D, a bit like space-like sector, is also in a better shape, generally speaking, because I think this is in the park that we are entering the earliest. I think our location is indeed in the center of the Suzhou Industrial Park, which becomes quite core. I think even our local team's ability, and the market also likes our product. Generally, I think we are able to hold the occupancy as well as the rental reversion better.
Yeah.
I think, going forward, it's hard to say, but I think, at least for now, we are seeing that it's more resilient than the other two sectors.
If I look at the MNC, in our Xinsu asset, we continue to be there in high proportions, which is obviously quite different from other business parks.
Yeah.
And I think that really boils down to the reputation, this being a Singaporean-run, Singaporean-maintained asset. That is a tremendous advantage to have.
Okay. Good to hear. Happy New Year and all the best.
Thanks.
Thank you.
Thanks, Joel. Terence, can we go back to you before we hand the time to Gulate please?
Yes. We have seen a fair amount of revenue declines in 2024, and it seems like the portfolio is also suffering from the effects of operating leverage. So margins suffer as a result. My question is there a lag we should consider in terms of the ability to reduce costs? I guess in essence, should we expect margins to stabilize or improve from here?
I feel that margins should be quite stabilizing here. I mean, Joanne, because our focus in 2024 has been to cut costs. In 2025, we are still focusing on areas where we can cost optimize. Our debt initiative will also kick in. That is my broad view, that margins should not shift much from henceforth.
Yeah. Margins, I think we have observed that other than those one-off items, generally the margins focus around 61% for the retail portfolio and 70% for the BP.
Correct.
I see DPU has certainly fallen and that gap has widened against 2023 strong. I know you cannot guide for 2025, but for your narrative, it sounds like borrowing costs, FX, these risks, the bulk of it seems to have come and gone, hopefully. It seems like on the portfolio side, you are stemming some of the occupancy issues, maybe a bit of negative reversions to come, but it sounds like it is not so deep. Is it fair to say then that the DPU outlook for 2025, if any decline, it should not be the order of magnitude we have seen in the past two years.
Okay. Certainly not in the order of magnitude. You are talking about double digits magnitude. I do not think that is where we are at this stage. But we are positioning the portfolio for better retail revenues. We are going to do a few AEIs. There may be some downtime that will fit into 2025, but you are right in the sense that I will not be expecting that kind of big double-digit decline.
Okay. Thank you. All the best.
Thank you.
Thank you, Terence. Hi, Gula.
Hi. Happy New Year to everybody. Hi, Gerry. I've got two main questions. The first one is, what are the logistics transactions that are taking place right in CNH, in renminbi terms, versus the valuations you have on your book? I mean, are they about the same or are they a lot lower, if you could? Also the business parks, but business parks are a bit more diversified, so it depends on what they, whether it's Hangzhou or GCM.
Okay. So you're talking about transactions in the market?
For log and BP versus what we are currently holding on our books?
You Hong?
Yes. I think for the logistic assets, some of the insurance players also reference to, say, [number theory]. They are looking at a yield of around 5% or even a slight share of that. So I think that's where they are looking at. I think in the past, people looked a bit more on the capital value per square meter, but now this latest batch of investors are more yield-driven. I think the same could have been said for the business park. Generally speaking, I think we are seeing they are looking at a healthy five-ish kind of yield for the set.
Yeah.
What are the NPI yields of your business parks and log assets then?
I think our BPs are in the 5%-6%, close to 6%. I think they are a bit lower, given the reduction.
Okay. The other question, of course, is the C-REIT market. I mean, are there any very few people you could do, like, a secondary listing in Shanghai or anything like that? Have you looked at that? Because I remember many years ago, CapitaLand was looking at the C-REIT market.
Yeah, you're right that CapitaLand has looked at the C-REIT market. I think it continues the market of interest for CapitaLand. But CLCT, of course, will be guided by the sponsor in terms of where they're going on that front. If indeed they go ahead with it, we may or may not participate. So we have to see.
Yeah, I think we are watching this space.
What are the C-REITs trading at versus your kind of assets? Because I believe the retailer assets are also allowed in the C-REIT now.
Yeah. If I remember the latest in the market, I think it has performed quite well in the sense of the stock market has had a good run for the past couple of months. So they are trading, initially last year was about 5, now it is about 4-ish. Yeah.
For the bigger retail, what you call consumption C-REIT.
That is right.
Okay. All the best. I hope your BP will stabilize soon.
Thank you.
Thanks.
Thank you, Gula.
Thanks.
Okay. Thank you, Gula. Do we have any last questions that might be coming through? I do not think we have further questions or hands raised. We hope this discussion has offered you valuable insights into our operations and future outlook. Please feel free to reach out to me if you have any questions. Again, once again, Happy New Year to everybody. May the year of the snake bring you lots of happiness and good health. Thank you.