Hi, good morning, everyone. Welcome to CapitaLand China Trust first half 2024 results briefing call. I am Nicole, IR of CLCT. I have with me today Tan Tze Wooi, CEO, Joanne Tan, CFO, and You Hong, Head of IPM. Our agenda for the next hour will be to begin with a short presentation before proceeding to our Q&A segment. We will take questions after the meeting. I would appreciate it if you could raise your hands if you have any questions and I will direct the time over to you. I would like to pass the time on to Tze Wooi. Tze Wooi, please.
Thank you, Nicole. Good morning, everyone. Thank you for taking time to attend CapitaLand China Trust first half results. I think most of you are aware that in the last few years, we have been working on to reshape our portfolio towards the China domestic market to capture longer term growth that is more consumption and the innovation-led economy. For the last one over a year, I would say our focus has been to really conduct the asset enhancements to our portfolio that make it a little bit more future-ready, while trimming the non-core retail holdings to improve our balance sheet strength. For this first half results, you would see that we are reporting for the first time our nine retail performance, the post-AEI versus our 11 retail mall that we had last year. Let me just walk you through the respective financial and the operational highlights.
If you look at the first half highlights, overall revenue are slightly down. If you break down into the retail portfolio, I mentioned earlier, due to the absence of Shuangjing and CapitaMall Qibao, slightly down. O n a comparable nine-mall portfolio basis, the revenue actually showed a 4% improvement. At the business parks portfolio, amidst a very competitive leasing environment, I would say we managed to do well in terms of our revenue, in terms of maintaining it to be stable. The big negative variance for this half actually resulted from the weaker logistics segment, where we see lower occupancy as well as the sign-in rentals. Extending into the net property income side, overall, again, due to the exit of our key contributor, one of those overall NPI, took in debt into account. O verall, the retail portfolio still increased 0.3% year-on-year.
This is driven by broad-based improvements that we see across our other retail malls, particularly those that we have completed our AEIs, showing quite a commendable 18% over percent improvement. The lower NPI again resulted from the business parks and logistics that I mentioned earlier. For business parks in particular, although our revenue was flat, we actually did not receive as much of the government tax incentives relative to a year ago. Moving down to the DPU, I think you will see that because of those factors that I mentioned, and also during this period year-on-year, SGD continued to be very strong, recording a 4% strength against the RMB. O n translation, that eats into our SGD DPU.
If you look at half- on- half, that would be a little bit more comparable because last year, this period, the second half, I mean, there's no government tax incentives for the business parks. I think that gives you a more equivalent basis. On a year-on-year basis, I mentioned earlier, due to the translation and the higher withholding tax for this period, because we brought in more cash dividends from China to manage our offshore gearing. You see the gearing being stabilized at 40.8% and also managing our stabilized cost of debt. A little bit of those withholding tax on a year-on-year comparative that erode some of this DPU. I'll talk a bit more over in the retail portfolio, but largely you will see that our largest segment showing quite good leading indicators improvement in the area of traffic, sales, occupancy, etc.
A little bit of operation highlights, again, for the three buckets of our assets. I think a lot of the AEIs have been completed, continuous tenancy remix has been done. A lot of anchor spaces have been revitalized, and we also put in a lot of new offerings. I think all this have helped us to be able to attract back the footfall and also capture some of the consumer spending that are normalizing back. Compared to a year ago, our retail performance has seen, I would say, a very steady recovery and improvement. Right now we are repositioning our two smaller assets. I think this continues to be of a lower weight after majority of our assets have completed those active tenancy remix and enhancements.
You see that flowing through into our two quarters' results in terms of occupancy, in terms of footfall and sales. At the business park side, I think we have been focusing very much on targeting the sectors that we see are having more demand and also working quite closely with our tenant community and also the government on what sectors they would like to attract into the parks. By prioritizing some of these capture, you see the occupancy we are able to maintain despite a rising supply situation. We maintain the occupancy and we brought in some domestic and international tenants. Some are quite curated in the sense that we have been able to attract some of the users, other footprint elsewhere to consolidate and expand their pick up into our parks.
I think this is something that is encouraging and we'll continue to focus in that sector. At the logistics side, I think the last time we met, I've updated you, we have four assets. Most of the wheel are arriving at the same point, so we have taken steps to de-risk Wuhan and Kunshan and built that occupancy improvement in Chengdu. Largely, you would see over the last three months, progressively, we have stabilized the operations over the three assets, now leaving the Shanghai asset for us to reposition and reevaluate what are the longer term plans for this asset. If you look at our June cutoff, Kunshan was reported at about 85%-86% occupancy. S ince July post-cutoff, we have managed to sign new leases that will move this asset to 99%.
Largely in step with what I have mentioned to you, our focus in terms of progressively stabilizing the three assets. At the capital management side, I think I am happy to report that we continue to show healthy financials and show strength in this area. We have completed all our 2024 financing ahead of time. We have also taken active steps to refinance those debts that will be coming due in 2025 and 2026, able to refinance them at better interest margin. I think this will start to filter in towards the second half of this year and into 2025. The other key initiative we have done is to really shift a little bit more of our borrowings to be more RMB denominated, so as to capture the easing interest rate cycle on that side.
We started with about 10% to move into 20% last year, and we are on track to move to 30% this year. As of June, we are at 27%. That LPR reduction have already started to show some interest savings for ourselves. As I mentioned, the active debt and cash management, moving cash out of China back here. This active approach have resulted in us managing down our total interest cost in this environment. We continue to be very healthy in terms of our credit metrics, in terms of the ICR. We also took opportunity to increase the proportion of our SLL loans and overall continue to maintain a very steady and consistent high fix and also FX hedging policy. Let me just zoom in a little bit more on the financials.
I think this is just a representation of what I mentioned earlier, looking at first half year-on-year, having a little bit of noise where I mentioned nine malls versus 11 malls, a bit of that government tax. I f you look at against two half, I think that is a more normalized kind of comparison. You see the DPU reflecting that stage. For the balance sheet for June, I think we took opportunity to also look at some of the asset holdings. I think among the three asset classes, I think based on what we have mentioned in terms of vacancy and also of the negative rental reversion that we have secured, signed in for logistics. I think having that discussion with valuers, we actively and more prudently actually adjusted some of the values down in June.
That is also managed into the valuation for June updated, and that shows the NAV of SGD 1.19 for this period. On the gearing I mentioned, stabilized. Average cost of debt stabilized. I think what is interesting here is, I think the latest MAS updates on showing some sensitivity. We showed that for that increase of 100 basis points to our cost of debt passing, our ICR continues to be very healthy and way above the guided limit. This slide gives you a very quick snapshot. Earlier I mentioned the SGD 250 million loans that are due in 2025 and 2026 have been secured, and that will be pushed out into 2029 and 2030, respectively, as we go into the second half of this year.
The right side of the pie chart shows you that shift of where we want to do, reaching 27% as of June, on track to reach that 30%, so as to extract a little bit more of the interest savings that we are seeing at onshore level and those debt that are dominated in RMB terms. The one that we did last year, the renminbi FTZ bond, have already come in to help achieve some of these savings.
Let me move on to a little bit more on the portfolio side of things. I think CLCT continues to be one of the most diversified, I would say, in terms of where we are drawing our tenancies. Our top 10 tenants contribute less than 10%, and our highest contribution is only 1.6%. Broadly, we are drawing our leases from a very well spread and represented three different asset classes.
As we continue to shape our tenancies and remix our profile, you can see that we have progressively moved towards sectors that are able to attract more of the consumer spend of today and going forward. F&B is a clear example. Compared to a year ago, we have increased it. Looking at the business parks, again, we are looking at more domestic champions, those that are promoted domestically in terms of electronics and engineering. Our parks are actually positioned to work closely to capture some of this demand. Moving to retail, a very quick snapshot, nine malls across the six cities. This first half really gives us the encouraging statistics. If you look at post-AEI, really that has helped a lot in pushing the better performance that we see.
All in all, shopper traffic improved double digits, 14%, and sales continue to be hovering above the China market at 6% over. You see this traffic improvement broad-based across all our nine malls. If you look at those malls that are having completed their AEI, they're taking a proportionate higher contribution, which validates some of these proactive things that we are doing, taking back space from anchors. Going forward, we still see, I think the next one to two years, pockets of opportunities as major supermarkets lease expiries coming into play. W e're in that early review process to look at more opportunities to recover some of this space so that we can drive a little bit more of the rental productivity on these spaces.
If you look at occupancy, largely holding steady compared to a year ago, you see that occupancy moving back to what I feel is a more normalized state. I think you see all the key assets are moving high towards the 99%, 98%. I think very comfortable. The only asset that I think are still requiring a bit of more attention to tweak, is Xinnan. I think that is still in a relatively cycle where we need to rejuvenate a lot of this churn on the active leases that we are currently holding. T hat cycle continues as we speak. Another key highlight I want to share is if you look at where things are this half versus the last one to two years, I think largely things are more stabilized and normalizing.
You see the proportion of how many tenants we retain has also been increasing to about 60%. You look at profile of how we sign the leases, I think I explained that for new leases, typically, we have to lower a little bit of the upfront rental for them to de-risk a little bit because they had to put in a lot of CapEx. I f you look at the lease renewals that we are retaining, I think largely you see that able to come off less pressure now. Some of these leases, we are renewing at positive. If you look at overall, seven out of our nine malls are already recording positive rental reversion.
Even if you apply the method that we used to do where we measure the most strict of the first year's incoming rent versus last year of the outgoing rent, that continues to be easing off in terms of pressure. I think that's a good sign that things are normalizing. The retailers' opcos is normalizing, and it gives us a bit more of that positive trajectory as we move into that cycle. You see more and more malls reaching that level so that as we look into the second half and 2025, I think the trajectory for retail should be one that is improving. I think these are some of the cases that we just want to demonstrate and share with you.
Some of these new leases, new tenants that we brought in have helped us to really boost a lot of the traffic and sales, and we'll continue to see how we can have synergy on bringing more of such across our portfolio. These are some of the examples that I will just leave with you. At the business parks, again, if you look at where things are, five business parks, largely, we are prioritizing to stabilize the occupancy. We managed to do that relative to the market. If you read some of the market reports, I think across the cities that we operate, a lot of new supply are coming up, so vacancies have been increasing.
Despite this backdrop, I think the teams have done well in terms of securing renewals and also able to attract new entrants into the park, especially in promoting some of our existing tenants to expand and take up new spaces. Some of these tenants are coming from sectors that are the ones that we are targeting, for example, the biomedical, the electronics, and also the engineering. If you look at the three cities, I would say Suzhou continues to be stable. In first half , Xi'an, it's stable. Hangzhou is the one where we continue to face a little bit more pressure, and you see us maintaining the occupancy. A s a result, the rental have to be adjusted. I think all this take into account, moving into how the leases are signed.
For first half , you see that negative rental reversion, largely due to the Hangzhou ones, bringing down overall to about - 3%. I will leave this with you in terms of how we build that community of activities within our parks. Over to logistics. I think I have mentioned earlier, as we move into July, the Kunshan occupancy has been pushed up to 99%. R eally, if you look at the two assets that we started off in wanting to stabilize it, they have now reached 99%. Chengdu, we have progressively moved the occupancy consecutively over the last three quarters to now 80%. Based on the pipeline that we are seeing and negotiating, I do see two half improving over first half. That really leaves only the Shanghai Fengxian that we are evaluating the options.
I mentioned already, if you look at where things are, we see a little bit more traction in space demand from occupiers that are facing more the consumer-related, retail-related industry. These are the target sectors that will work very closely with our ground team to secure a pipeline. Going to the last section, I think our focus continues for 2024, as I guided, is really to drive asset performance. We see post-AEI, the retail asset class showing that the leading indicators are on a positive trajectory. I mentioned on traffic, on sales, on occupancy, on the opcos, and also the rental reversion. I think the whole portfolio, although leaner and smaller, they are stronger moving forward to be more future-ready. At the portfolio side, we will continue to be disciplined to look for opportunities to monetize and recycle the proceeds to strengthen our balance sheet.
That is something that we will stay very focused on the ground, and being agile, to look at where are the potential new opportunities to strike. The last part is really to improve and enhance our financial metrics. You saw what we have started off, having that active debt capital market management shifting more to the RMB. I think these are starting to show some of the savings effects amidst the broader interest rate environment. This continues to be our main focus for 2024. In terms of what we are watching very closely, I think the Chinese government have just come up from very important July meetings, and I think they have a lot of initiatives to implement. You are going to see, I would see more and more of such details being implemented and being disseminated down to the local district, local governments to implement.
I think general tone is that they are watching the economy. They have a broad target, and you already see some of these more supportive measures in terms of lowering the interest rate. I think a key focus is really to bring back the confidence to the consumer and the business community. I think this is something that I think bears watching. What we can control, I think we have shaped our portfolio to be really more resilient and more ready that when the confidence comes back and the market comes back, our overall portfolio is of a better quality one to capture that growth and right the economy. I think with that, I will just hand back the session to Nicole, and we can do a little bit more Q&A. Thank you.
T hank you, Tze Wooi, for your presentation. Now let's proceed to the Q&A segment. If you have any questions, please raise your hands. I see that Terence, you have a question. Could you please share that with us, please?
Thanks Tze Wooi and Nicole. I just wanted to ask especially on the BP and logistics parks. Logistics parks, -27% rent reversions. When should we expect some stabilization there? Could you maybe share a bit more about how you're trading off rents for occupancies? On the BP side, I just wanted to get a sense of what was the impact of this government incentives that were withdrawn and whether there's any more one-offs which are supporting or holding up NPI. Is this more of a stabilized number for this first half for NPI?
Yeah. Thanks, Terence. I think if you look at this slide, it gives you that quick view of what I have described earlier. The -27% rental reversion is quite consistent with what we've guided you in the last three to six months. Really those leases that have been secured for Wuhan, for Kunshan, and for Chengdu, those are in our words traded. Actually, the whole market where we operate, we are seeing this short-term supply demand imbalance. I think most landlords are adjusting their rental downwards to reflect that. I think we are probably in line with what we talked to the local leasing consultants, the agencies where we operate. I think this is probably the range that we are seeing. The key question now obviously is the Shanghai one, where we are really studying two tracks of options.
I think one way is to just look for tenants that can use the space immediately. That's one way. The other way is really to work closer with the local government. We are aware that they would like to base certain profile of tenants that can give them that tax base into that area. W e're also working out options, whether it makes sense to, with the government, with the tenant, ourselves, to do a bit of CapEx to specs up a little bit to suit that tenant needs. I n return, we sign a longer lease that can more or less increase the kind of lease duration. I think this is the only asset now that we are embarking on this more deliberation. The rest of them, we have signed leases that are in the tune of about two years.
Given the occupancy of where we reach almost full for Kunshan and Wuhan, that will last us till the next cycle. Chengdu a little bit more smaller spaces to lease out. I think that is something that I mentioned earlier based on the current situation. We see a little bit more pipeline and traction from consumer-related kind of users who like the fact that Chengdu Shuangliu is very near to the Shuangliu Airport. I think these are target sectors that we are focusing our leasing efforts. On the second question is on BP. If you look at BP, specifically, you mentioned about the government tax incentives. Just to give you a sense, last year, the full-year of 2023, across our BP portfolio, the amount of tax that we received from the government probably works out to be order about 5% of our portfolio revenue.
I would say significantly, those are in Hangzhou in first half. You do see that tapering and falling off year-on-year when you look at the government tax incentives not being able to repeat itself. I think that is the things that we are seeing. How things would turn out in the second half, how things will go forward is quite difficult for us to say for sure. W e work very closely with the government and take, for example, the CLI ones. The government sometimes would like to incubate certain tenant profile, certain sectors that they would like.
If we can work together, we stand again to also enjoy a little bit of this tax benefits or incentives. I hope that gives you a little of understanding of where things are. First half predominantly, we lost the last year's Hangzhou. That is the main factor that moved the year-on-year. If you remove this, actually, I would say the business parks as a whole is quite flat, which is in line with the revenue.
Thank you so much. Maybe I could ask just simply one more question. I just want to understand what is the stabilized or what is the financing cost you expect for this year, especially given that you are shifting more of your funding to RMB.
Y ou would start to see, last year, if you look at our first half results, our divestment proceeds have helped to pay down, in first half . That is why we enjoy the savings. The shift towards RMB help us to neutralize a bit of that offshore where you need to reprice some of our fixed rate hedges. All in all, our guidance is you look at where things are. We are stabilizing at about 3.5 level where we see things going into the second half this year.
Thank you. That is all I have.
Thank you. Thank you, Terence. I would like to pass the time on to Joy. Joy, please.
Thank you, Nicole. Morning, all. Question from me on tax. Can I just to confirm that both the expiry of tax incentive as well as higher withholding are these show in different lines in your accounts or this is all shown in just on the tax line itself?
The government tax incentives is in the NPI line itself because that is a property level tax that we used to receive. T hat if you look at the business parks NPI, that is already in that line. The withholding tax line is a little bit, not in the NPI level, but more in our distribution adjustment side where you see where this year we repatriate a little bit more than a normal volume of dividends, partly to manage offshore gearing and partly because we managed to get some clearance on the certain qualifying withholding tax. These are more one-offs that we are trying to achieve out of this first half . I hope I answer your question, Joy.
Yeah. For the second half, are we going to see the same amount of tax impact on the withholding level?
I would say we have done almost for the year, I would rather say that we have accelerated some of this in our first half , so you do not see a repeat in the second half.
Got it. I guess follow up to as you repatriate more capital from onshore, is that also a sign as to how your CapEx requirement onshore is going, you would not be requiring that much of CapEx? How does that indicate in terms of your inorganic growth trajectory? Thanks.
I think in terms of CapEx, we do have enough onshore cash. 100% of our cash are earned and generated onshore. I think what they've done in this first half is to bring back that a little bit of accumulative dividends that we have not brought back during the COVID years where things are a little bit not settled. Going forward, I think really we have just gone through three major AEIs across the last 12 months. I think for this year, we don't foresee big CapEx that we are in motion of spending.
Going forward, I think I mentioned, we are starting early review and discussions with several supermarkets anchors. Their leases will be due in one to two years' time. If there are signs of weakening or if there are opportunities for us to take back space a bit earlier, I think that's exactly what we are planning to do for 2025.
Thanks. Any inorganic side, any-
I think, I've shared, I think the focus for current year is really to look at opportunities to monetize some of our existing assets, especially the lower yielding ones, improve the balance sheet strength as we look for more inorganic growth. I believe there are opportunities that are there for us to capture if you roll this out 6-12 months, but we need to strengthen our own vehicle in terms of ability to raise competitive cost of capital for us to capture some of these opportunities.
T he focus is really organically shape up the whole portfolio, drive the asset performance. There are room where we see, I think the second half, there are clear room where we can cross synergize a little bit more for our retail portfolio. I think that's an area of focus where we want to achieve as we drive the revenue side. Look for opportunities to exit some of these earmark assets. I think with that, we are in a more right window, I would say, to look at inorganic growth.
Perfect. Thank you.
Thank you, Joy. I believe we have Felicia Tan on the line for The Edge Singapore.
Hi. Sorry, my video is not very good, but, I have just one question. For the REITs warehouses, the rents for the new tenants, are they a lot lower than the rents for the tenant that just vacated? Could you give us some sense?
Sorry. Felicia, right?
Yeah.
Are you referring to the one that we signed in July, is it?
Yes.
The July one is more or less tracking that around the dimensions for 30% rent down versus the earlier passing.
Okay. Thank you.
Okay. Thank you, Felicia. I would like to pass the time to Harry, please.
Thank you for taking my question. I just have one question here. It is about the China's retail outlook. As of July, what segment you see has or what trade you see has outperforming the rest? Where do you see the opportunity for the company to actually out-compete and to gain the opportunity? We obviously see the change of the consumer consumption habit this year in China. A lot of change. Probably we see some downgrades. You see how the company will benefit from the change of the consumer habits. Thank you.
I think generally you are right. I think the consumer habits are evolving. I think we have read enough headlines that I think the Chinese consumer are also broadly tightening their belts to be more cautious and more rational in where they spend. Given this bigger backdrop, I would say the nine retail malls that we have are actually well-positioned in the segment that are capturing this kind of consumers. A clear trend is if you look at what is outperforming, we have been increasing our F&B. F&B is definitely one category in our malls that are doing well. In first half , I would say across our nine malls, all F&Bs have demonstrated their year-on-year improvement. Largely because we are in the right segment that provide them the kind of price points and offerings that people are gravitating.
The other clear outcome is because of the new offerings that we add in. I think a combination of all these post-AEI, have positioned the mall to be able to capture some of this consumer spend that are gravitating towards value, towards lifestyle choices, towards services. Across our malls, you see F&B increasing better. Services are increasing better. If you look at even IT spending, electronic spending, jewelry spending, I think these are the areas that we are improving and enhancing our trade mix and brand mix. At the same time, you see more of the consumers gravitating towards this. The other key area that we have done is really to improve our essentials offerings. You see us actively changing out those supermarket operators that are no longer able to connect with the consumers of today.
You see us doing that for Grand Canyon, you see us doing that for the Aidemengdun . We shrink them in Rock Square. We consolidate space back in Yuhuating, etc. All these have helped us release more spaces to inject more of those things that are able to capture spend. Overall, that is what has been driving, I would say, the retail recovery in our portfolio. Just to give you a sense, if you look at where things are today, double-digit growth in traffic, improvement in sales across year-on-year. That has made the trading environment a better one. That is the picture that I would like to leave with you for first half . That said, I think the broader sentiments is still one that we have to keep watching.
Consumer spend hopefully will improve as we go into second half, as the government release a bit more targeted measures, whether is it fiscal side or the monetary side, to bring back a little bit of that more feel-good mood. I think if you look at the Chinese, they are still recovering from a few years of that household wealth, very tied to the property sector. I think that is clearly the number one priority that the government is trying to stabilize the economy, jobs, employment outlook, household disposable income is going to be a key area that the government would want to improve. I think with these two things more stabilized, our portfolio will be in that segment to capture this spend.
Sure. Thank you.
Okay. Thank you, Harry. I would like to pass the time to Geraldine, please.
Hey. Hi, morning, Tze Wooi and team.
Hi. Morning.
Yeah. Just thinking about your second half DPU. Capital management front is very stable. You are working on retail hard and new economy, maybe some risk to pursue. How should we look at second half DPU compared to first half DPU?
I think if you look through our portfolio, I would say first half logistics is probably where we see the bottom. If you look at where things are, we are improving the occupancy for two assets to 99%, then that will start to contribute our two half revenue. Chengdu is progressively moving from the 60% to 70% to 80%. Again, as we drive up the occupancy, that incremental will come in. For anything that we sign into Shanghai will be incremental. I think from that perspective, logistics is half- on- half should see stability or improvement forward. The key is really the retail, and I do see that with the higher occupancy that we have secured, revenue should be stable to improving. Despite we are running a nine malls versus 11 malls, the key is really to look at some of this running costs in the second half.
Seasonally, our second half typically have a higher running cost because of the cold weather. A lot depends on the utilities front, whether we can see how things go for the utilities front, because that sometimes is very driven by seasons. W here we can control, I think is the staff related, the marketing, the maintenance. I think these are the ones that we are working very closely to really extract more cost synergies, I would say, on a bigger sponsored platform. I think that is critical for us to maintain the NPI profile for the retail segment. Key now is the business parks. The business parks I mentioned, as you move into the second half, at least on a year-on-year basis, there will not be big swings in terms of the tax incentives.
I think there will be some in and outs because there are going to be a bit of expiries coming in the fourth quarter of this year. A lot depends on whether we can secure the ins and outs in time. Also a bit of downtime if you want to factor in bigger spaces coming in. I would just break down these three buckets for you to take away. Logistics should be improving half on half. Retail, all the leading indicators are on a positive trajectory. Cost is something that we are watching. For BP, there will be some big spaces up for renewal. I think we are really actively negotiating to make sure that the occupancy can remain stable.
If you look at below the NPI line, I think that is where I mentioned the debt capital market side of things should be stabilized to improving in terms of the interest cost, etc. Taxation for this first half , there is a little bit of one-off because of more dividends flow. We do not expect that to materially repeat itself in the second half because most of that have been brought in. I think that gives you a large, I would say, rundown on the DPU picture.
Thanks, Tze Wooi. I think I might have missed it for the - 27% reversions in logistics space. How many leases does it represent? Is it just one single lease?
If you look at the Wuhan and Kunshan, they are predominantly high percentage to single tenants. They are broadly maybe two to three leases, thereabout. It is not a big number. They are predominantly anchored by a big space user. In Chengdu, that is the one where we have a little bit more, but it is not a lot for this first half that we have done.
Okay, so about five leases that supported this negative reversion.
N o. As a portfolio then it will be maybe around nine, 10.
9- 10 logistics leases?
Across the different properties.
More from Chengdu.
Yes, correct.
More from Chengdu. two to three for Kunshan and Wuhan. That gives you the broad rundown. Three assets.
Okay. Got it. Tze Wooi, I think going back to divestments, where do you see divestment opportunities? Because within logistics, probably with the volatility of rents, not sure how the big ask spread is. Are you still looking to sell retail now, or is it just a matter of price? If you meet the right price, then maybe you will consider.
I think from a divestment perspective, you are right. It is always coming back to whether the price is reasonable. We are now a more diversified sector. We do not focus on one at the expense of the other. More so as a portfolio, how do we continue to build that resilience and quality? Looking at where the market is, I think we have to be a bit more tactical at times, looking for suitable buyers who are able to handle bite-size transactions. You specifically highlighted for logistics. Again, for the logistics, if there are opportunities for us to exit, use the money to improve our balance sheet strength, we stand ready to do that because it will be an enhancement to our overall financial metrics and DPU profile. I think that is something we will do. On the retail side, again, it is not a one-off.
We are always reviewing through the retail holdings, which are core, which are non-core. Which are the ones that we are able to AEI and continue to maintain relatively high dominance in the catchment that we want to do business. If they are the ones that are suitable, you already see us doing that. Out of our nine malls, I would say currently the two weakest ones are the smallest ones, the Aidemengdun and Xinnan, who are less able to compete going forward. If there are opportunities for us to exit, I think, again, this is something that we have earmarked and would like to do that. D oing business in China, we just have to be a bit more tactical. In the current climate, it is not easy to find big portfolio deals.
We have to grow more local monies, and you saw us doing that last year for one of our Chongqing assets. In fact, all our divestment to date are all monetized to the locals. I think that is something that we will continue to tap on our strength and our sponsor domain strength to help us look out for these monetization opportunities. Yeah.
Okay. Thanks, Tze Wooi. Have to drink more baijiu with the potential buyers.
We just have to be having our antenna up on the ground level, be very sensitive to knowing how to cut a deal, at what point in time, what motivates people. I think these are really the skill sets that in this climate will be valuable, and I think we have our sponsors' domain strength, ground teams to help us look out for such opportunities. I think that's where we're going to spend a bit more time to look for monetization opportunities, yeah.
Okay, hope for the best. If I can just slip in one more question. Post the Chongqing completion, you actually did some share buybacks. Any updates on the share buyback strategy front?
Actually, most of the proceeds for Chongqing have been utilized to reduce our expensive debt. I would say those are the ones that help to achieve the year-on-year savings. I think once we are able to monetize more and bring the gearing down to a level that we want, definitely the next divestment, the proceeds, we'll probably looking at a combination of that.
Okay. Thank you. Thanks, Tze Wooi.
Thank you, Geraldine. Do we have any last few questions that we have on the call? Please feel free to raise your hands so that we can direct the time over to you.
Sorry. JPMorgan, it's Terence. Tze Wooi, can I ask a question? I just want to ask on the business park. I understand that there are some leases coming due in the second half. I wanted to understand trading off rents for occupancies. Should we expect more negative reversions in second half for the business park?
I think the more income pressure would be seen in Hangzhou. I think that is what is consistently I've guided. You see this first half as a portfolio. We are reverting about - 3.7%, largely driven by high single digits to double digits Hangzhou. I think if we were to continue to prioritize, I think that's something that we are looking at. The other Suzhou I mentioned, it's more steady, more stable. The key one that we are watching in the second half is actually the Ascendas in Xi'an Tower. That's the one I mentioned that in the fourth quarter, there are indications that there are tenants moving out. We are also trying to capture, consolidate other users in Xi'an into our park. I think we are actively negotiating for that to happen.
If that comes in, I think we should be okay in terms of the occupancy. R ental, generally softer than what we expect in terms of passing relative to last year. I think this is generally the kind of guidance that we can give. If you look at the vacancies in the marketplace, if you look at the sentiments around business expansion, people are consolidating footprint. People are very cautious about spending a lot of CapEx. I think all these are critical business decisions that we have to deal with. I think, I do see a little bit of that coming from Ascendas Innovation Towers and the two Hangzhou. The other two are Suzhou and Ascendas Innovation Hub, I would say relatively more stable.
Thank you.
Thank you, Terence. I'd like to pass the time on to Ada, please.
Hi, Tze Wooi. Hi, Nicole. Thanks so much for the presentation. I know that we are currently still quite a far way away from the year-end portfolio review, but just wanted to ask if there are any sort of concerns about revaluation losses on the portfolio, especially for the logistics parts, given the very deep negative rental reversions, and also wanted to clarify what gearing level management is more comfortable with.
Yeah. Our gearing policy has always been quite consistent that we are guiding at about 40% is where we would like it to be. The latest MAS update suggests we have two goalposts to look for, or rather manage for all REITs, right? Gearing is 50%, so at 40%, I think we are well within that kind of guidance of limit. In terms of ICR, if you look at the guidance, it is 1.5 x. As we run our business today, we are at 3 x. I think very comfortable in terms of our gearing relative to the latest regulatory limits. A s a policy, we would like to continue to maintain about 40%. I think that's the gearing question.
On the valuation question, we have active conversations with the valuers. I think in June, because of the negative reversions that we have secured for our logistics, and also the vacancies that we are seeing, the rental, we have marked down close to 7%, 8% in first half . W e have, on conservative basis, already worked that in. I think that will alleviate some of the pressure as we go into the second half for the logistics, because we have already done that. Based on first half, what we are seeing in terms of the rent roll, market rent, I think the valuers generally have moderated slightly down on rent growth and market rent, given supply situation. A s a portfolio, we don't think the retail segment is going to move materially.
For business parks, I think as a portfolio, we are outperforming, I would say, the market in terms of occupancy, in terms of passing rental, in terms of the asset yield. I think that is also an area where we feel less pressure relative to comms. I hope that gives you a color of us already taking a bit of early action in June to address the more likely logistics segment in terms of the downward pressure on valuation, and we've done that in June. H opefully going into year-end, there will be less pressure. Retail as a portfolio, I think there might be some adjustments because of the weaker rent that we signed and the moderation of market rent outlook. I t's not going to be very material as a portfolio.
Thank you, Tze Wooi . I'm very glad to hear that.
Yeah.
Thank you, Ada. I would like to pass the time to Peggy, please.
Thanks, Nicole. It is just with one question. I am not sure whether it has been asked. You have a gain on disposal of subsidiary of about SGD 7 million. That I can understand. T here is also a withholding tax on the gain of disposal, and that amounted to SGD 12 million. How is it? Are we talking about the same subsidiary? If so, why is it higher than the gain itself? You wrote that back for distribution. Does it mean that it will not be actually paid out in future periods? That is just my question. Thanks.
Yeah. T his one is a bit more financially technical because we are reporting for first half 2024, and we actually announced the divestment of CapitaMall Shuangjing way back in 2023 year-end. The right way to look at it is to look at two periods to capture the full view. The withholding tax in relation to the divestment is because we have divested, we have made some divestment gain. T hat is the amount of taxes that we need to settle before we can repatriate the Shuangjing investment proceeds out. The fact that we have reflected a loss in this period has to be read in conjunction with the last second half of 2023 financials, because that was the period where we reflected the gain from the markup of our divestment price relative to our last carried value.
Yeah. I supplement a bit. I think because we have made an announcement on the Shuangjing divestment last year, and for accounting-wise, we have to actually reflect the price that we have actually divested. L ast year-end, we have already uplift the fair value of Shuangjing. In terms of the line item you will see last year, essentially it is actually the fair value gain arising from Shuangjing. Then for first half, because we have completed the divestment, as such, based on whatever we have uplifted in terms of the value versus this, the NAV that we have. T hat will reflect the gain on the disposal. O n the withholding tax front, we have to reflect whatever that we have paid for the gain that we did for this divestment. I hope I give you a sense of where the different line items are.
It is really because of the two time periods of one reflecting the fair value up and then this period where we have completed the divestment and we settled the relative?
Withholding tax.
Withholding tax in relation to that divestment, yeah.
Okay. Understand. Yeah.
The next question is whether the proceeds have been utilized to pay down our debt. That has been put to use already.
Okay. More taxes related to this to be paid in future periods, would that be?
In terms of the divestment of Shuangjing?
Yes.
We have completed.
We have settled it.
Because we have announced the completion, we have settled everything for this first half period. Yes, correct.
Okay, good. Thanks very much. Thank you. That is all I have. Thank you.
Thank you, Peggy. I would like to pass maybe last question or last two questions to Hong Wei.
H ello. I would just like to ask a little bit on your thoughts on the capital structure in relation to perpetual. You have SGD 100 million perpetual that is callable next year. With this change in terms of the MAS, it is still in the consultation paper stage. For the perp, if let's say for next year, obviously rates should come down a bit, but it should be still at a level that is more expensive than your RMB- CNY kind of funding. What do you think about it? Would you take the opportunity to take this perp out by refinancing with cheaper CNY debt? That is my question.
I will look at it from two perspectives. One is generally we like our gearing to be around the 40%. I think that is the general guidance that we would like to ship the vehicle. What form do we use to refinance or redeem the perps? I think we still have a bit of time to evaluate how the market opportunities are as we approach October 2025. The good thing is recently, if you are aware, there are some REITs who are issuing new perps that have better spread relative to the old perp. I think if that market starts to open up, it gives us more opportunity to potentially look at a new perp to replace an old perp. As we advance into October 2025, I think there will potentially be more portfolio reconstitution that has been achieved.
That will then allow us to look at how we intend to refinance or more options that we can think of. I think this is something for us to keep watch. It is not a decision that we need to take today. The perps that we are having in today's context is definitely a good pricing. It is at 3.375. Not likely that we can repeat it.
Your question is whether do we think about using CNY debt to repay that? If we can do potentially, for example, say a Panda bond or a repeat of a FTZ bond, I think it makes sense, but mindful that we want to watch also the gearing level. I think that gives you a quick sense of we will watch this space, how it develops. We have time, we have different means to look at it to make it more optimal.
Thank you for the sharing.
Thank you, Hong Wei. Since we are already nearing 10:00 now, before we conclude the session, Tze Wooi, would you like to share a few words?
Yeah. Thank you for attending. I think we give you a good idea of CLCT's performance. I think largely, it's that focus really to drive our asset performance. I think that will be the focus for the year. You have seen us do that in the first half, we will continue to do that. We will definitely look for more opportunities to monetize some of our existing holdings that are not core and the lower yield. I think if that can be achieved, that will be an immediate boost to our vehicle. Longer term-wise, I think we will definitely look at more means to enhance our capital structure through that portfolio reconstitution. I think this is going to drive our management efforts as we go into the second half of this year. T hank you very much for your time. I will see you again.
Thank you, Tze Wooi. Thank you everyone for joining us. We trust that it has been a fruitful session for you, and that you had a better understanding of our operations as well as our outlook. P lease feel free to reach out to me with any questions. Thank you and have a good day.