Hi, good morning, everyone. Welcome to CapitaLand China Trust Virtual Briefing on the proposed participation in CLCR as an IPT. Thank you for joining us today. I'm Nicole, IR for CLCT. I have with me today Gerry, CEO, and Wenpei , AVP of IPM. Thank you all. For the next 30 to 45 minutes, we'll start with a short presentation to provide an overview, basically sharing a little bit more about what we have released last week, and followed by a Q&A session. Once the presentation concludes, we'll open the floor for questions. If you have questions, just use the raise hand feature, and I'll pass the time on to you. Let me hand the time over now to Gerry.
Hi. Good morning, everyone. Thank you for joining us on a Monday morning. This presentation is really a follow-up of our April announcement. Last week, we've announced us signing the equity transfer agreement. That basically is the next milestone, in terms of our proposed participation in CapitaLand Commercial C-REIT. Oops, sorry. Okay. Let me just go through some of the information that perhaps we did not disclose or were not able to disclose in the April announcement. For this announcement last week, one of the things that you would have seen is that CLCT has entered into the project co equity transfer agreement for the sale of CapitaMall Yuhuating to CLCR, and we have described a little bit more detail on how it is to be done. In fact, we disclosed there are two stages.
The first stage is that CLCT will enter into this ETA with Changsha Kaiting, which is a CMA entity, for the sale of the Changsha project co equity interest to this Changsha Kaiting. That's step 1. Then step 2, CapitaMall Yuhuating will be transferred to CLCR through Changsha Kaiting. Changsha Kaiting itself will enter into another conditional ETA with the eventual purchaser, which will become eventually a part of CLCR. You may ask, why is there a two-step process? And the reason is that the C-REIT regime is such that it requires the originator of the C-REIT to basically have reinvestment obligation. The reinvestment obligation is 85% of net proceeds. And by doing this two-step process, the originator will no longer be CLCT directly. We are transferring the originator reinvestment obligation, in fact, to the entities that purchase our Yuhuating Mall in the first ETA.
In fact, the obligation will be passed to CMA. In this way, CLCT will be free to use the proceeds that are generated out of this divestment, including remitting offshore to Singapore to pay debt and to undertake unit buyback and other general working capital purposes as we deem fit. That's one additional thing that we disclosed. The second thing that we make clear is that our subscription of the strategic stake into CLCR will be 5%. That will come up to about less than 20% of the proceeds that we are receiving from this sale. Right. I think that's about over SGD 20 million. Okay, so that's the other additional information that we have provided. If I look at the next chart, where we gave a clearer structure of the post-transaction look of how CLCR is structured and managed.
You would see that, again, we talk about CLCT having 5% strategic stake. Collectively, the whole CapitaLand group will hold at least 20%. That is what is required under the C-REIT regime. The other question that is bound to be asked or thought about is, and I think the last announcement, some of the stakeholders as well, the analysts have asked this, which is whether there is double fee in terms of fees being charged at CLCT as well as CLCR for our holding of the CLCR units. The answer to that is there will be no double fee. There is, they will be charged in that way. There is only one set of fee that will be charged at the CLCR level. Okay, I hope that makes it clear.
The other thing to note is, the last announcement in April, we also said that CapitaLand continues to have an active role, and that role really is about managing the projects. As you can see, CapitaLand Investment continues to be the operation management or the asset management entity of the project in Changsha as well as the other project in Guangzhou that will be part of the initial portfolio for CLCR. Okay, I will not go into much depth in terms of transaction rationale. I think I covered that in the April announcement. But the most important thing, I think, to highlight is this is strategic. It unlocks the value of our mature retail asset, Yuhuating, and it also, in the long term, gives us an additional channel for capital recycling through CLCR, which we can directly access now that we have a strategic stake in it.
We have a strategic stake, but we are not originator, just to reemphasize that. Let me just go straight to maybe some other details about the transaction structure. The transaction structure, as you can see, is actually the approvals that we are seeking are two, which are chained together. The approvals are the proposed divestment, which is the CLCT divesting CapitaMall Yuhuating into CLCR in that two-step process that I mentioned, as well as CLCT subscribing for the 5% of the IPO of CLCR. These transactions are IPT in nature. We will be seeking their approval, unitholders approval in the EGM. That will be disclosed in due course. In terms of the independent valuations, we have already gotten indications and gotten valuations for the divestment. As per the required Property Funds Appendix guideline, we need to do two independent valuations.
CBRE and Colliers did them. CBRE at RMB 780 million and Colliers at RMB 748 million. Some questions may be asked why there is a difference. Number one, I would say that the difference is not much. It is less than 10% between the two valuation, which so it is within norm in terms of such valuation. Second thing that we have seen is that between CBRE and Colliers did have a slightly higher discount rate. That explains a portion of that valuation difference. In terms of the divestment consideration, we have mentioned before that there is currently a base floor price in our announcement, which is RMB 748 million. We have based that on the lower of the two independent valuation, because the PFA guidelines is such that we will not be able to sell the asset if it is below the lower of the two valuations.
We have set the floor price at RMB 748 million. However, the final price of the divestment is really depending on the IPO process. There is certainly a potential that Yuhuating may be sold to CLCR at a price higher than the floor price of RMB 748 million. If we look at what has been the feedback so far from the market, as well as the IPO track record of the Series market, it has been relatively positive so far. We do, in fact, hope that we can get a better price than the floor price, and that is certainly something that we view a likely outcome at this stage. The other thing that I would say is that we will emphasize that the divestment consideration will only be finalized after the IPO units are priced.
That will still be subject to prevailing market condition and investor sentiments. In terms of timeline, we have signed the ETA, the conditional ETA. That is what has triggered the announcement. The next thing that you can look forward to is the notice of EGM and the dispatch of the circular. That will be in third Q, hopefully, faster, sooner rather than later. Our circular is now being cleared by SGX, and once the approvals are in, we will be in a position to basically give out the notice of EGM and dispatch the circular. We also expect that EGM will be in third Q of 2025. Thereafter, once the EGM approval is obtained, we will get the formal CSRC and SSE approval, which are really just conditional on us getting our EGM approvals in place. After that, we will formally list CLCR.
That is expected in fourth Q 2025. Maybe I just share a little bit of the pro forma financial effects that is also in the announcement. We have provided two scenarios. There could be multiple scenarios, obviously, but we just wanted to give a feel of how it will look like, depending on how we use the proceeds that are coming back. The yellow bars, which is the first column, post-transaction, represent if Yuhuating is sold to CLCR at the floor price of RMB 748 million, but we decide to use everything into paring down debt offshore. That is the orange bar. The red or maroon bar represent if we use part of the money, about SGD 50 million, to do unit buyback.
You can see that at the full price of RMB 748 million, you can see that the effects are such that if we use all the proceeds to pay down debt, there will be a slight DPU dilution. Our gearing will improve by about 120 basis points. Whereas if we use SGD 50 million to buy back our units, there will be a DPU accretion. NAV, also a slight accretion. In terms of cutting down gearing, of course, we will not be able to pay down as much debt. So gearing more or less stay the same. That is at a price of RMB 748 million.
If we are able to sell at the higher price, we have used RMB 790 million as an illustration. You can see that the metrics all look substantially better than the examples that we showed in RMB 748 million. In terms of exit NPI yield, at RMB 748 million, we are selling the asset about 6.8%. At RMB 790 million, it is 6.4%. I think I mentioned before, about 6% over is in fact par for the course for such asset because it is already matured for Yuhuating and as well as in the tier 2 cities.
It was not surprising to us that the end result is about 6% over handle. Of course, we hope that IPO process have lots of interest. If it is very well subscribed, we may in fact get a higher valuation for our asset. I think that is pretty much it in terms of the information that I would like to cover today and the additional information that was in last week announcement. I will open up the floor now to take any questions that the analysts or the other participants in the call have.
Thank you. Thank you, Gerry, for your presentation. We will now proceed to the Q&A segment. We have the first question from Geraldine. Geraldine, I would like to pass the time to you, please.
Yeah. Hi. Good morning, Gerry, Nicole. Thanks for having this call. Maybe just a quick question on the 5% stake. I think you had a price to it about SGD 20 million. Are you able to share the existing assumptions behind this? As well as just a follow-up on the C-REIT IPO metrics. Typically, how much do they yield at in accordance to book and as well as listing year? If you can just give us some color for our understanding. Thank you.
Okay. The first question, I think, is how do we calculate this 5%? The SGD 20 million.
Yes.
It is estimated that there are some documentation that we have sent in as part of the Chinese prospectus for CLCR's listing. So that comes with certain assumptions of valuations. From that, we back calculate to get this net SGD 20 million number. The other question is regarding the typical use. Am I right? For C-REITs?
Yeah.
Yeah.
If you can give us some color, typically, how much do they lease in accordance to their book values? If it's above or below.
The typical use right now is about 4%-5%. In fact, our Chinese prospectus are also in that region. The region that we intend to market CLCR. In terms of the price to book, they are trading right now, the consumption C-REITs are trading at above book.
Thanks, Gerry. Maybe just a clarification. I think the 4%-5% yield is the trading levels right now in the market for C-REITs. I also note that there has been a lot of share price outperformance since listing.
Yeah.
Would you have an idea, typically, where do they list at?
I would say currently, the current levels are about 4%-5%. You would have imagined that maybe the earlier batch would have been slightly higher. After that, there has been some market discovery and some up-trading of those initial C-REIT participant. As new participants get in and list, obviously the views start to tighten. Yeah.
Okay. Thank you.
So this is Wenpei who is directly involved in this work stream, yeah.
I think when the consumption C-REITs in China get IPO, I think their DPU yield is around 5% point, I would say, high 4%.
Yeah.
Right now, the trading yield is lower 4%. It is 4% - 4.2% something. So you can see from the share price, I think they go up quite well since the IPO.
Yeah. So initial batch at listing may be about 5%+.
Yeah. About 5%.
Then it started to tighten.
Okay. Based on the color, it seems like there is a good chance you will be able to sell this at higher than the floor price. Maybe, Gerry, just another quick one. I think if you look at shares buyback versus reducing gearing, I think both make good sense now, but which one are you tilted towards? That is all from me. Thank you.
On that, I think we will look towards maybe closer to year-end in terms of how our financial position is. But I have also said that my priority now is, in fact, if there is no change in terms of financial situation, it is likely that I will put more towards powering down debt than doing buyback.
Okay, understood. Got it. Thank you, Gerry.
Thank you, Geraldine. Can we have Terence, please? Terence from JPM.
Thanks, Nicole and Gerry. Just maybe following on from Geraldine's question. In terms of putting the proceeds towards the share buyback, what will be the key considerations to deploy more proceeds towards the buyback?
Okay. I think the key consideration will be our gearing levels. I do want to try to keep our gearing far below the 45% mark. So that is something that we will get more clarity as we move closer to year-end and looking at our valuations, looking at FX, looking at general situations. And of course, our share price itself. Whether it is an attractive level to participate in terms of buying back some units. So I think rest assured that at a point in time when we can make the decision, when we get the proceeds back, we will use the money in the best interest of the unitholders. Yeah.
Thanks, Gerry. In terms of the valuations, you did explain that there is quite a big range in the valuations and also in the potential sale price. Where could the sale price land? Is there an opportunity to sell at even higher than your higher price of RMB 790 million?
This is rather speculative, I would say. I think, number one, the two valuations, I think the difference is about 4%-5%, so I don't think it's really out of whack in terms of our independent valuations for a transaction is concerned. As for whether we can sell higher than our illustrative price of RMB 790 million, really, I can't tell. If you look at the valuations that we think we can get it at, certainly there's a chance. But I can't commit. It really depends on the market situation at that point in time.
Thanks. As you highlighted in your presentation, there is some slight dilution to DPU if you were to utilize the proceeds to repay debt. Would you look to offset this in other ways or you are okay with that slight dilution, given that gearing is coming down?
I would say at this moment, I think a slight dilution should be okay. But I would say that, again, when we get closer to the end of the year, I'll be able to make a better judgment call at that point in time. The fact that we have some cash coming back, that could be used for a variety of things. That could help if we need to help to support the DPU. But again, I would say that I would have to wait until the end of the year to see how things turn out.
Okay. Thanks so much. That's all I have.
Thank you. Thank you, Terence. I would like to pass the time to Vijay, please.
Yeah. Hi. Morning, Gerry and Nicole. Thanks for the presentation. I have three questions. My first question is, who will be the REIT manager and the property manager for the CLCR? Sorry if I have missed it.
Okay. REIT manager for CLCR, right? Okay. If you look at the transaction structure, let me get back to that slide. So actually, there is an independent REIT manager. The Chinese is fāshòu. Okay. Yeah. So if you can see that there are a few entities here. ChinaAMC, which is actually under CITIC itself, is what we call the C-REIT manager. There are another manager called the ABS manager, which is basically in charge of the ABS scheme, and that's under CITIC Securities. But the equivalent of what we deem as REIT manager is the C-REIT manager, which is by ChinaAMC, which is an independent third party REIT manager. And if you look at this chart, in fact, let me get back to this. Yeah, you can see that ChinaAMC here is the CLCR manager. At the initial listing, this is how the whole structure may be managed.
Okay. At the start, CapitaLand or CLCT will not have any interest in the REIT manager at this point of time. But eventually, you plan to gradually move into the REIT managers or CLI might move into the REIT manager. Is that the direction?
I think this question for CLI to answer, but I think generally speaking, the group does want to control the REIT manager that they are sponsoring in terms of the REITs that they are sponsoring.
Okay. But property manager would still be you, CLI?
That is right. Yeah. That one is quite clear. You can see that CapitaLand Investment under CLI, that is still the same.
My second question is that this Changsha Kaiting would be the holding vehicle throughout the life of this REIT, or is it a temporary vehicle? If I want to look at from a growth perspective, if you want to divest malls moving along into this entity, you would be putting your divestment into Changsha Kaiting, and then Changsha Kaiting eventually, over a period of time would be divesting it into CLCR. Is that how should I look at it? There are some restrictions in terms of how much a CLCR can acquire as you move along. Maybe can you give us some color on that?
Changsha Kaiting is a conduit, actually. It is the conduit that we are selling through CMA into CLCR. After the listing, in fact, Changsha Kaiting would no longer be holding the assets. Yuhuating in particular. Just to make that clear, because it is a two-step process, Changsha Kaiting is the first step, and then Changsha Kaiting itself in the second step will sell to the CLCR eventual entities. Then to your question of, if in future we are doing more injections. Of course, that is, again, it is crystal balling, but one potential possibility is, again, we repeat the same step, where we do this two-step process, and we go through the CMA entity again, and then they will go through again this CLCR and ABS process to inject the asset directly into CLCR through a two-step ETA process.
Got it. Is there any restriction in terms of how much CLCR can acquire in a particular year?
There is no size restriction. The restriction I think we spoke about is there's currently a one-year restriction from an injection and-
An IPO.
... an IPO of their assets to the next follow-on injection.
Thank you. My last question is that in one of the slides, I saw that CLCR is purely going to be a retail asset. Is that a requirement or is there, could you have made it as a retail logistics and business park portfolio eventually so that you might be able to spin off some of your business parks and logistics assets?
Currently, the regulation is such that they only allow single asset class C-REITs, so it has to be a single asset class. At this point, the group have decided to use retail, the retail asset class as the first pioneering effort to establish this C-REIT initiative.
Got it. Thanks, Gerry. That's all I have.
Thank you.
Thank you, Vijay. Can I pass the time to Terence from UBS, please?
Hi. Good morning. Can I check, is there any distinction between, let's say, from a city tiering or asset performance standpoint that would explain potentially why this could be less comparable to the concept you reference?
Concept reference.
I guess with regards to, there was a citation of some of the listing yields, low falls, but the assumption is we are comparing apple to apple. We could be, but my point is what is the apple to orange comparison? Because I see some of them are potentially like they have, let's say, higher same-store sales growth to offer, and I am not sure how this portfolio will stack up against those, the incumbent C-REITs.
Mm-hmm. Thank you for the question. I think you rightly point out that, in fact, there is a difference in terms of the yields for different assets in different locations. So our particular asset is second-tier cities. So it is about 6% in terms of yield. For example, the other asset by the sponsor, it is a first-tier city. Right. So it does get a tighter yield of that 4%, 5% yield. It is also a bigger asset in terms of the contribution for the initial portfolio.
Right. So if it comes to some of the other series that have been, that are in more than 4%, those are, in fact, the higher tier cities. Whereas the 5% or five over percent probably will be the ones that are in lower tier cities. Ours is in fact a little bit of a mix because ours is part, maybe about one-third second-tier city and two-third first-tier city.
Got it. And maybe with regards to timing, just curious if there is some kind of urgency underlying this with regards to there potentially being a quote, unquote, "deluge" of, let's say, sponsors coming to market. If I look at China Resources Land, it seems like they are also trying to go hard at trying to raise money. Just your thoughts on timing in this current cycle.
I think my own view is the timing is quite favorable, right? If you look at, well, the key reason why domestic liquidity is in fact buying is, it's captive liquidity. For new options, a lot of the issuers can really only buy maybe corporate bonds or government debt. So government debt is below 2%, it's about maybe 1.6% now, 1.5%, 1.6% now, this long-term government debt. And then for their corporate bonds, particularly the ones that they feel safe to buy, which is a lot of the SOE bonds, right? Those are maybe 2%+. There are foreign players who are very creditworthy, who are also launching bonds there, which are also 2%+. So, when they compare that to a series, that is in fact a 200 basis points, 300 basis points picked up. So there continues to be quite strong demand.
In fact, there was a recent case of 80 x oversubscription for one of the recent consumption C-REIT listing. I think the timing is still good, right? As far as you see, there seems to be a pipeline of people trying to release assets. This is a function of the fact that the market is vibrant, right? And the market has been growing quite significantly every year. And it has been absorbing well. Right. I am not surprised that people who have quality assets would want to take advantage of this development and continue to see how they can tap the market.
For us, of course, for CapitaLand, of course, we can say that we are in a unique position because we would be the first foreign-sponsored retail C-REIT in the market. As far as foreign mall operators are concerned, I think that there are few foreign companies with our heritage in terms of mall operations, mall management, mall investment, as well as our general reputation in China being very strong. There's been a lot of encouragement, in fact, from the government authorities to ask us to push forward, to try to list it as soon as possible.
Got it. Pardon me, I couldn't really understand the idea of a single fee, i.e. no double dipping. Let's see this chart. CLCT would hold a 5% stake in CLCR. The question is, will CLCT be charging a base management fee to unitholders on the 5% stake in CLCR?
No, CLCT will not be charging a management fee on the 5% stake.
Okay. Got it. Thank you.
Okay. Thank you, Terence. Yew Kiang ?
Hey. Hi. Can you hear me?
Yes. Very clearly.
Okay. Hi, Gerry. Hi, Nicole. Just two questions. The first is on the REIT manager. You mentioned that CLI is likely to take a stake, but is there any restriction in terms of no more than 50% for a foreign company or anything of that such that we should be aware about? Secondly, is on the long-term growth prospects of CLCT, right? Let's say there's an asset by CMA or CLI that they want to divest a retail mall in China. How should we think about the conflict of interest and which entity should it go into?
Okay. Maybe there are two questions. Thank you, Yew Kiang , for the questions. For the first question, maybe let me clarify. I think I did not say that CapitaLand Investment will buy the current manager, which is ChinaAMC. ChinaAMC is a pretty big complete part of CITIC Securities is Huaxia. I did not say that, but CLI itself does intend, and this is a licensing issue. One of the objectives is of course, in each REIT jurisdiction that it's active in, you would want to get the license to eventually be able to be the REIT manager for those REITs that it's sponsoring.
I can't say that the eventual solution is that for them to buy a part of ChinaAMC, but there could be different solutions, including, it could be buying, it could be getting their own license, it could be a variety of things. But I certainly did not say that they are certainly buying AMC. So that's-
Okay.
... just one thing.
Is there a possibility for a joint venture in this REIT manager, like 50/50?
I cannot comment on that, seriously. Yes, it is too speculative.
Okay.
Certainly something that you should ask CLI itself. Yes. I do not know, as I said, generally from the group perspective, they want to get the right licenses to eventually own the REIT or partially own the REIT manager. Yes.
Understand. Is there any regulation that prohibits foreign entity, you cannot have more than 20% in the REIT manager? Any regulations of that sort that we should be aware?
I am not too aware of it because I am not part of the team that are looking at the licenses. I do know that you need to get a license.
Okay. Got it.
This license is, I see, much more difficult than Singapore. You get a CMS license to be a REIT manager. In China, it is called mutual fund license-
I mean-
... tool asset management house. Yes. Okay. The next question that I would take, which is you are talking about future assets. Future assets from the-
Yes.
... of the sponsors. I think first of all, you need to recognize that CapitaLand as a group, has maybe about SGD 40 billion -SGD 50 billion of assets in China. That is across different asset class. Retail alone, I think is about SGD 18 billion, in terms of assets. So that is a big, big pie. Our own valuation, our own asset size right now is only below SGD 5 billion. So certainly there are growth opportunity both for CLCT as well as CLCR. You can see in the different announcement and releases that we jointly put up, that has been communicated that CapitaLand Investment will continue to support the growth of both CLCT and CLCR. That is one. Two, we continue, that is CLCT continue to have our existing ROFO, which basically a ROFO on a series of funds that CLI has.
In those funds, we have about maybe RMB 18 billion of retail assets that we directly have ROFO over. So that still is one advantage that we have, that our other vehicles do not have, including CLCR. So that continues to exist for us. Third, if there is in fact some assets that are not covered by the ROFO, then, for whatever reasons, even though the pie is so big that us, CLCR, or even some other funds within the CapitaLand Investment umbrella that looks at China wants to be a part of. We do have a robust process in CapitaLand.
There is an IC process that makes sure that such opportunities are looked at fairly, by any of the qualifying entities. For us, of course, we focus on China, so most of China assets would be basically shown to us. For CLCR, because it focus on retail. If it is a retail asset, they will probably be able to look at it. We will see that everyone will get the opportunity to evaluate. Generally speaking, the CL entity that best fits the situation, best fits the seller's requirements, will usually prevail. In fact, will prevail. That is, of course, not just a function of price. It is sometimes a function of deal certainty, speed, approvals that are needed, and the fit in general. Yeah.
Yeah. My concern is, okay, let us just run through the scenario where maybe two, three years down the road, you are still trading maybe close to where you are trading in terms of valuation, of course, the CLCR might be trading at a tighter yield. Then there is different kind of assets that both entities can buy because of the difference in cost of capital. Let us say CLCR started to buy some tier 1 assets, given your cost structure, you can only acquire some of the maybe tier 1.5 or tier 2 cities assets. Will the market start to look at, oh, maybe this is a better vehicle, favored child, if that sets-
I think-
Like the better quality assets-
I would say number one-
Yeah.
Number one, we try to address part of it as the fact that we are taking a part of CLCR. That's one way that we're trying to address it. But number two, one big part of the difference is CLCR is a pure domestic vehicle. The investor base are only domestic. Only PRC domestic investors can invest in it. CLCT continues to be CapitaLand's vehicle that targets global investors outside China domestic investors, that are interested in having a China play. So that certainly is one key difference. Also of course, we are able to diversify, and able to take different sort of risk spectrum. And in fact, we can do more AEIs, brownfield, even greenfield, if required. Whereas CLCR is very focused on investing in very mature income-producing assets. So their remit is, and their mandate is more restricted than ours.
Okay. Thanks. That's it for me. Thanks, Gerry.
I can add on just two more points. In terms of the size of the follow-on so far, if you look at some of the C-REITs, their follow-on offering issuance size is around RMB 415 million to about RMB 1.8 billion. So I think firstly, the follow-on size for C-REIT for now, it looks really quite small. You cannot really buy very chunky assets from there. The second thing is, in terms of acquisitions for CLCT, we can react a lot faster. We can do placement, and we can be a lot faster from a fundraising perspective.
Of course, if we have to do the EGM, it will still be a bit longer, but it will not be as long as from a C-REIT perspective, where easily their follow-on process could be about six months to about eight months, around there. So in terms of the speed of responding to an acquisition, we are much faster as well. So size and speed, I think also are some of the key difference, in terms of when CLI is looking to look for someone to acquire those assets, are things that they will also be considering.
Thanks, Nicole.
Yeah. Okay. Do we have any further questions? If we don't, I really appreciate everyone's time today. Please feel free to reach out to me if you have further questions. Thank you all, and have a good day.
Thank you.