Hi. Good morning, everyone. Welcome to the CapitaLand China Trust call on the proposed participation in CapitaLand Commercial C-REIT. I am Nicole, IR for CLCT. I have with me today Gerry, CEO, Joanne, CFO, and You Hong, Head of IPM. Thank you all for joining us today. We are very excited to actually share with you more about the rationale of our participation. We will start with a brief presentation, followed by a Q&A session. Once the presentation concludes, we will open the floor for questions. If you have a question, just feel free to raise your hand and I will pass the time on to you. I will hand over the time to Gerry. Gerry?
Thank you, Nicole. Good morning to all. Thank you for attending this morning's update from CLCT. We are happy to share that together with our sponsor, CLI, and also CLD, we have submitted an application to list a C-REIT on Shanghai Stock Exchange. The C-REIT is to be named, but we will call it CLCR for now. What I will do is to go through some high-level rationale for CLCT, in terms of participating in this transaction. I seek your understanding that some of the transaction details are not disclosed or available yet, as we have not published a circular, which requires regulatory approvals. The proposed C-REIT will be what is known in China as a consumption or retail C-REIT. Its mandate is to invest only in wholly-owned income-producing retail assets in mainland China.
CLCT intends to contribute CapitaMall Yuhuating in tier two city, which is Changsha, as a seed asset to the C-REIT and CLI/CLD intends to contribute CapitaMall SKY+, which is in tier one city, Guangzhou. CLCT will be a joint strategic investor with CLI and CLD on the first international-sponsored retail C-REIT in China. The three strategic investors intend to collectively subscribe about 20% of the IPO units. The IPO units for the strategic investors will be subject to lock-up as per China's C-REIT listing regulation. CLI will remain the asset manager of the assets in the C-REIT, and the role of asset manager here is predominantly in property management. Both the proposed divestment of Yuhuating and proposed subscription for CLCT into the C-REIT are considered IPTs, so they are subject to unitholders' approval in the EGM.
The transaction is also subject to review and approvals from the relevant Singapore and China authorities. For CLCT, this is a strategic opportunity to differentiate ourselves and get access to an onshore C-REIT platform through which we can tap largely captive domestic liquidity in China to recycle assets and unlock value. CLCT will also continue to have rollover from CLI. Post the listing, we may use the net proceeds from recycling Yuhuating to pay down debt or pay down debt and reduce leverage, do unit buyback or combination of both, depending on our situation after the listing. Next, let me talk through the transaction benefits for CLCT. Firstly, this is in line with our roadmap to diversify as a multi-asset class China-focused S-REIT.
By unlocking our mature tier two retail asset, we strengthen our balance sheet and gain some financial flexibility, and also diversify into a new investment asset type of a C-REIT. Next, this is a strategic opportunity for us to become a key stakeholder of this C-REIT and broaden our access to China domestic capital market. As the only REIT with access to China's C-REIT market, we are able to differentiate CLCT from the rest, whether it is S-REIT or H-REITs. China domestic capital market and investor base is largely untapped by global REIT players. Through our participation as a strategic investor, we can also improve interest from qualified domestic debt and equity investors. In fact, we already have a small following among domestic equity investors, and we hope that that broadens as we participate in this C-REIT listing. Finally, the C-REITs themselves have upside potential.
The C-REIT market is growing and domestic investor interest is strong due to the limited options for new plays, given that government bonds are trading at below 2%. If we look at IPO price increase for consumption C-REIT that has been listed, post-IPO performance has been strong. In summary, the proposed transaction is our next step to build a future-ready portfolio and a participation in CLCR comes with long-term strategic benefits beyond the recycling of capital or purely financial returns. This, we believe, will truly differentiate us from other REITs. Timeline-wise, we have to conduct an EGM to get unitholders' approval, as well as obtain the necessary onshore and offshore regulatory approvals before listing. Of course, an IPO is also subject to market conditions. The detailed timeline, as well as details on the transactions, will be announced in due course through a circular.
As this is an IPT, independent valuation and an ISA opinion will be obtained for the transaction and be disclosed through the circular. Thank you. Next, I hand over to Nicole. Maybe we can take some questions.
Okay. Thank you, Gerry, for your presentation. Now let's move on to the Q&A segment. Thank you, David, for your first question. Can you please unmute yourself?
[audio distortion].
Hello. Yeah, I am actually Geraldine.
Oh, okay. Hi there.
Hi, Gerry. Nicole. I think a surprising announcement. Maybe just some questions on my end. As for the strategic stake, 20%, I was just wondering how we should look at it, with the rest of your portfolio. I think interest for C-REITs, especially retail, is very strong now, up 30%. Are you actually able to lock in any form of capital gains and any locking periods?
Okay. Thanks for that question, Geraldine. Let me take each question, and if I miss out any question, please let me know. First, the 20% stake. I think if you note our presentation, collectively, the three strategic investors, CLI, CLD, and ourselves, we will collectively take this 20% strategic stake. This strategic stake is also part of the regulatory requirement, when the originators of the C-REIT, they are required to take some level of stake, and 20% is sort of the stake amount that one has to at least take. In terms of the allocation, we will obviously need to discuss that internally among the strategic investors. But generally speaking, there will be a fair allocation, depending on the amount of interest that each party contributes to that C-REIT. So that is one part.
Regarding the lockup, I think I mentioned that there is a lockup for the strategic investors. All three of us who collectively hold that 20%, we are subject to a lockup. The lockup is five years from listing. That is the requirement for all C-REIT listings and C-REIT originators. Third is with regard to, there is one more question on
Capital gains.
Capital gains, right. On this point, as you can see, at this moment, we have not disclosed divestment consideration. That is because we do require IPO process from this listing. An IPO process will basically determine the divestment proceeds, and of course, the exact computation, therefore, we have to wait until then. Rest assured, in our circular that is going to come up, we will put some ranges and you can look at those ranges to make your calculations. Yeah.
Okay. Gerry, I think the last time I was actually referring to the strategic stake. If, say, it goes up 30%, are you able to sell this to the public after your five years lock-up period?
Yes. That is why there is a lock-up. After the five years, we will be free of the lock-up.
Okay. Just one last quick one. Are you able to share the targeted yield and gearing for this C-REIT platform? I understand C-REIT is trading at about 4%-5%.
Yeah. Okay. Again, there are some details that we need to work out. But generally speaking, the C-REIT platform has a lower gearing limit, and this slide, this additional slide that I provided on the differentiation of the S-REIT versus the C-REIT, shows that. At maximum, the C-REIT in China can have a gearing limit of 28.6%. The exact amount needs to be finalized, and we will choose more details when the circular comes up. That is one. In terms of the final dividend yield, again, quite difficult to give you an exact number till now, but I think what you have mentioned is correct. Today's market, the C-REIT market basically is trading at a distribution yield of 3.5%-5%, and that is still the case.
Okay. Thanks, Gerry. I will wait for the others to ask questions. Thank you.
Thank you, Geraldine. Can I pass the time on now to Joy, please?
Thank you, Nicole. Hi, Gerry.
Hi.
Just a question on asset selection. How did you end up putting Yuhuating into the REIT? Is there a consideration of actually injecting more than just one asset? Maybe just some rationale. Thank you.
Okay. Thanks, Joy, for the question. We did go through several rounds of looking through our assets, what is suitable for our participation in this, and we selected Yuhuating. One of the reasons why is it is one of the smallest retail assets in our portfolio. If you look at, as a percentage of contribution, maybe it is about 3% of AUM, 3%-4% of NPI. That is one factor. We want to use a smaller asset to basically start this, because it will take some time as well, and this is sort of like a fit asset to try this platform. Secondly, we are also looking for an asset that is already mature, and we have already reaped the AEI potential. We see possibly no real, big AEI potential in the longer term.
So fitting into really the logic of divesting mature assets, there's not that much upside left in that asset. So that was one. The other reason for it, as you can tell, in 2023, actually, we have already done our big AEI on CapitaMall Yuhuating. We have reaped some of the benefits of that NPI increase in 2024 and 2025. So we thought that this is a good asset to unlock value and recycle. So these are the main reasons why we have selected CapitaMall Yuhuating. In terms of future assets to be basically injected or used to be recycled, I think, it's a bit premature. We are still doing the first one.
Our thought is that, when we can do the second one and basically in the C-REIT environment, it basically needs one year of clearing period, that is by regulation from the listing to the next follow-on, before the originators can basically inject a new asset into the C-REIT. So between the listing and one year later, we will review and see whether we have the need to recycle and which are the assets that perhaps fit the category of matured assets with less upside, where we can think of unlocking some value. So that would be some of the considerations I have at that point in time. And also, of course, when I recycle, whether there's a good use of the proceeds that comes back. Yeah. So that's also another consideration.
Got it. Thanks. If I can just follow up, because I think there are quite a lot of restrictions also on assets or the type of assets you can inject, can we get a sense as to what percentage of the portfolio are actually readable into a C-REIT, potentially?
You mean my CLCT portfolio, right?
That's correct.
Okay. I think we will not rule out any of the assets, first of all. As you understand, the C-REIT market is evolving. In fact, it has changed quite a bit from the first batch already in, I think, 2023. We are monitoring the situation. Theoretically, all our assets potentially can be available, but there may be regulation change that we have to take into account. That's something that I would say. Of course, for us, it's more important that we determine which are the ones that perhaps is truly mature in our eyes to say, unlock value through the C-REIT. The second thing is also, in terms of market sizing. The market sizing currently, I'm not saying that in future it's the same. Currently, it's not that big for the C-REIT injection, whether it is IPO or follow-ons.
The typical size is maybe less than RMB 2 billion, probably about RMB 1 billion for an asset. You can basically only inject 100% of an asset in there. So size at each injection is also determinant. If you look at our assets, some of them are actually quite large. For those, we probably have to wait a while while the market conditions basically catch up to it.
Got it. Thank you.
Thank you. Okay, so now let's move on to the next question from Rachel, please.
Hello. Hi, good morning. Thanks and congrats on being able to launch this. I think we've been waiting for a while. So I think maybe first question is, on the 20% stake, can I understand how do you get the 20% number? Or do you have any intentions to increase this eventually or later? Yeah.
Got it. Okay. Thank you, Rachel. This 20% stake is a regulatory requirement by the regulatory authority in China. All originators required to collectively, basically, take up at least 20% stake. In terms of whether we can subscribe to more when the opportunity comes, the answer is yes. Because we have a participation in the REIT and future follow-ons, for example, if any one of the originators inject assets to the CRI, there will be a new capital that's needed by the CRI, and the placement process will happen. At the time, if we want to, we can also increase our stake.
Do you have a fixed stake of roughly what's the stake that you would like to have?
This, I think, will be something that we will disclose maybe closer when the circular is out. Yes. Because obviously, the shareholdings is something that is not determined now. During the circular stage, we will review it, and that is probably around what our sweet spot is. Yes, at this point in time.
Okay. I am not quite familiar with the C-REIT, but do you already have a targeted list of investors that you are targeting, or is this for retail investors as well in China?
The C-REIT is a domestic product, basically that means that only domestic PRC capital markets participants can buy. So they are institutions, domestic institutions, and they are also a small retail tranche. Maybe about 10%-20% is the retail tranche. So purely domestic. So no foreign or global player can actually buy these C-REIT units.
Okay. If, let us say, the C-REIT takes off very positively, do you have plans that eventually this C-REIT will be the pure retail play and you can be potentially a logistics or business park play and split it quite clearly? Is that the ultimate plan in the future?
No, that's not the ultimate plan in the future. Our own roadmap is to be diversified. We want direct holdings of retail assets. We want direct holdings of logistics, business parks, and maybe later on other asset class. We view this C-REIT as another type of investment vehicle. If you see how we sort of, put it in this pie chart, we almost split it up to say that it is a separate sort of, investment type that we view it.
What's the cap rates of the two assets that's being injected at the moment now? Any tax implications if you were to inject into the C-REIT?
Again, the cap rates, I think, we will defer that closer to when we basically publish a circular. Because those transaction details we have not disclosed as yet. That's one. But rest assured, we are required to go through an independent valuation process. As well as, there will be ISA opinion on this. So, certainly the usual scrutiny or IPT transaction will come into play here. The second question is the tax. Actually, there's
We will be subject to the usual tax
The usual.
if, assuming it is just a normal kind of divestment, the typical kind of
Yeah
tax that we will be imposed for any other divestment that we usually do. So no difference from whether it is to the bit or a pure divestment condition.
Can you remind us what is the tax like? What is the usual tax?
10%.
Yeah. The tax, typically for a transaction like this, involving a share transfer, it will be 10% on the
differential of the share versus the original cost. Yeah.
Okay. The cap rates are. Sorry, your portfolio cap rates now for the retail is roughly about 4%-5%, is that right?
5%-6%.
Yeah.
5%-6%.
5%-6%
take into account, this is a tier two asset.
Yeah.
Actually on our books even, the cap rates for a typical asset will be higher.
Yeah.
Yeah. Than average.
Okay. Okay, got it. I will go back to the queue then. Thanks.
Thank you. Thank you, Rachel. I would like to pass the time to Jessie, please.
Okay. Thanks, Nicole. Hi, Gerry. Thanks for the presentation. A couple of quick questions from me, please. I understand that the new China C-REIT plans to be a retail C-REIT. Is there any reason why we are focusing on retail? I think we have seen some media reports about how some malls are still empty in China because domestic consumption is not back to what it was before the pandemic. I suppose, what kind of retail assets are we targeting? I think you mentioned that the two proposed acquisitions are going to be malls from tier one and tier two cities, which are mature. My second question would be, if C-REITs can only have one asset class, are there plans to roll out other C-REITs in future? Maybe like a logistics C-REIT, for instance.
Jessie, right?
Yes.
Thank you for the question. Why retail? Actually, this is a CLI question, but also it is a question that we have thought about. I think, retail generally, if you look at our performance for CLCT, it has been quite resilient. Especially the part of the market that we are in, the middle market which is basically the bread-and-butter malls. The mass market, not the luxury malls. Maybe some of the news that you are reading, probably in areas where there are more luxury malls or more oversupply situation. Certainly the malls that we have are very resilient. You can see from the high occupancies that we consistently have. That's also true, I think generally speaking, for most of CLI's malls.
I think that's one factor, that we believe that we can make a difference, in terms of the participation in the C-REIT market by listing the consumption, I see. Secondly, the second factor is actually the bigger factor, in fact. Is our brand name for CapitaLand as an ecosystem, is quite well-known in China as a mall operator, a mall owner, and a mall investor. With that in mind,
With that in mind, obviously, if we launch a consumption or retail C-REIT, that will have stronger nexus and stronger attention from the domestic equity investors, because our reputation is such that we are strong mall players. That is on why retail. In terms of the other types of C-REITs, I think it is probably not something for me to speculate. Probably something that my CLI or CRI China colleagues will need to pick up on that. But for now, we are focused on this consumption of retail C-REIT to make sure that it succeeds.
Okay. Thanks, Gerry. Sorry, I just want to add one more question. I understand that the C-REIT will be for attracting domestic capital and also to potentially divest some of the mature assets from CLCT. But would there be any overlap in terms of the assets that both REITs in China might be acquiring?
Okay. Of course, they are looking at retail, and we are also looking at retail, so there may be some questions of overlap. Okay, so maybe I would go to this slide. I think there are key differences from the two REITs we showed. As you know, the C-REIT vehicle generally is more restrictive. They are focused on income-producing retail assets. Income producing means that maybe sometimes when you buy asset, there may be some AEI, and you may need to do a major AEI to order to reap the full benefit or the full upside from the asset. It is much harder to do in a C-REIT format, especially if you want to inject that asset into the C-REIT. So that is one difference where even though we are investing both in retail, there is a different spectrum of retail that both are looking at.
We, of course, happy with income producing. We are also happy with doing AEIs, or we are happy to also take some assets where they may not be so mature yet, but we do some AEI, and then we can reap the upside, which we have done in a few of our assets that we have bought, including, of course, Rock Square, which we have done many AEIs along the way to bring it to what it is today. The other thing that I would say is, of course, S-REIT can also do some development work. There may be a situation where you need to do some big redevelopment of maybe certain portions to reap the highest and best use of certain assets. That is something that C-REIT, at this moment, cannot do because they can only do income producing.
For CLCT, we still have our ROFR. Our ROFR is basically still existing from CLI. The only thing that perhaps when there is a mandate overlap is, of course, things that are not covered by the ROFR. In those cases where it is a balance sheet asset and it is not covered by a ROFR, and maybe both vehicles may be interested in it, we do have a fair process where multiple vehicles, not only just CLCT or CLCR, even maybe some of the private funds who may be interested in the same project, they will be basically able to bid on a fair basis for those assets. What matters usually is which vehicle can satisfy the requirement of the seller. For example, for third-party assets, the seller sometimes values speed of transaction, certainty, beyond pricing methods.
In this case, I think because CLCT is a little bit more flexible, we probably will be the quicker alternative for those sort of sellers. CLCR, which I shared, do take some time in terms of regulatory approval and asset injection. If you look at, so far, most of the asset injection for CLCR has been from the originators rather than a third-party buy that is triggered by the REIT itself. I hope that answer your question.
Yeah. Thanks, Gerry. No more questions for me.
Thank you. Thank you, Jessie. Can I pass the line to Terence, please?
This is Terence from JP Morgan. I know that you shared on the timeline is subject to the regulatory approval, but perhaps could you give us a better sense, if let's say the regulatory approval come through, how long would this take? Is this a six month window or is it a one year window before the listing?
I would say by the end of this year, definitely we will have completed the whole process. So it is not a one year window. I mean, it is shorter than that.
Okay, thanks. That is very helpful. In terms of the tax, I wanted to ask also, is there any tax implications for your holdings of the C-REIT itself? Is there any tax on the distribution out of the C-REIT, CLCT?
Maybe I pass that to Joanne.
I think it will be the same kind of tax that will be imposed, like how CLCT will be paying for those distributions that came out of the SPV right now. There is no different ratio.
Okay.
Currently for CLCT, when we receive any distribution from our SPV, those are actually subject to withholding tax of 10%. In the event that this vehicle were to actually pay distribution, and we want that distribution to be paid out to Singapore, then we will be subject to the withholding tax as well.
Okay, great. Thanks. I wanted to also ask on the other asset classes. CLCT has the logistics park that you have mentioned that you may look to divest. Is there any other opportunities to start or to do a more new economy kind of C-REIT for the other asset classes that CLCT hold?
As I was sharing, perhaps this is a question more for CLI, right? At this stage, I can say that we are focusing on the retail consumption C-REIT. If we make progress on other C-REIT, of course, we will share the market. Yeah.
Okay. In terms of the fee structure, I understand that you are sponsoring the C-REIT, so would you all be collecting management fees, or how does the fees work? Yeah.
This one, we are the strategic investors, so technically, actually, what we show in the press release is CLI is the sponsor of that C-REIT. The fee structure here, I think we will defer that disclosure until the circular, but there are some technical details that we need to work out. So during the circular, we will make it clear.
Maybe just final one from me on fees. Since CLI also does take management fees for managing CLCT, will there be a fee waiver for the C-REIT to CLCT? Yeah.
Okay, I think you're asking the same question. Yeah. Which I think the response would be the same. I mean, we are working out some details. It's better that once we work out the details, we put it in circular, then it will be a clearer answer for all.
Sure. Thanks. Look forward to the circular.
Of course, I'm going to presume you have a preference.
The preference is, yes, not to be charged twice for the same asset.
Yes. Understand that. Thanks for the point.
Okay. Thank you, Terence. Can I pass the time to Derek, please?
Hi, good morning. Can you hear me?
Yes.
Yeah. Hi, Joanne and team. Sorry, I was a little bit late. I am just curious about, I just have two questions. First one, could you give us a sense, post the divestment, how should we think about your gearing should come off and the proceeds? Should I assume that you will largely use to strengthen your balance sheet, or will you share some with your unitholders?
A good question. Thanks for that, Derek. Okay, so once we divest, of course, some of the proceeds, some part of it will go into subscription of the,
Sure.
Not a big part. The vast majority of it will come back to us as net proceeds. At this point, what we have written in the slides is that we can reduce our gearing, and we can also look at doing unit buyback. These are two clearly stated options. As I said, maybe still a couple of quarters until the listing is done. We will take that time and review our own position and see whether which one is more important. Both are something that, in my mind, it is possible for us to do either one or actually a combination of both. Yeah.
Got it. It is not announced how much you will take in the REIT, at this point in time?
Collectively, CLI, CLD, and us, 30%.
You?
Ourself, not yet. Yeah.
Okay.
It's a detail that will come in the circular.
Sure. Sorry, I'm just looking at you, I think as the asset. This is an SPV that you sell. I'm assuming there's an SPV loan there, just to be clear. So your net proceeds, if we want to do some rough calculation, we should assume that the first order of how the cash will go out, you have to pay the loan first before you can do whatever you want with it. That's how we should think about it, right?
Yes. But the loan is quite small.
Yeah.
At the moment, we do not have a bank loan on this.
Okay.
Before this, we still have some grandfathered shares.
Shared loan. Yeah.
Actually, that means the cash will still come back as well.
Got it. Excellent. Last one from me. Gerry, just broadly thinking, this is a very innovative structure. You have something that you can diversify, and it will be trading at 4% over percent yield. I am just wondering whether, as an offshore REIT, you are yielding very attractive returns, 7% over 8%. And with them buying, develop, and stabilize assets, will you think about doing more risk-on strategy, like value add or potentially development over time? And you can see your peers restructuring themselves into stable. I am just wondering whether CLCT in the longer term, should we see you morphing into a different animal or still too early?
I think that's an interesting idea, not something that I haven't thought about, but I would say still early. At this moment, as I've been communicating, we're trying to, of course, make sure we improve our own financial flexibility. Then we can really talk about a greater portfolio reconstitution, investment options, including the one that you have just said. Yeah.
Okay. Sounds good. We look forward to you to close the NAV gap. That's the first one.
Yeah.
Okay. Thanks. That's all for me. Yeah. Thank you.
Thank you, Derek. Can I have Darren, please?
Yeah. Thanks, Nicole. Hi, Gerry. Just a couple of questions. Can I ask what is the expected price to book for the listing of this C-REIT or price to NAV?
This is,
Yeah. Darren.
Darren. Yeah, Darren.
Okay.
Thanks for that. Okay. Actually, again, it is not disclosed yet, but I think generally, if you look at the C-REIT market, they have been listed or traded close to book. Then after listing because of the performance, particularly for consumption C-REIT, it has basically been a slight premium to book.
I see. Thanks for that. One more question is, what are the tax incentives like for C-REITs in general?
There is not specific tax incentives, but I can ask You Hong to touch on the structure itself, maybe.
I think the mature structure with actually a public fund plus the ABS, that has been employed by almost all the REIT. I think through that, there were some tax planning involved. From our legal point of view, I do not think we are like the Singapore S-REIT tax waiver kind of thing.
Yeah, it is not like a tax incentive of stamp duty or lowering your corporate tax straight. The ABS structure in itself offers some benefits because some of the holdings and maybe the interest and the debt that is issued by ABS are available for interest debt deduction. Yeah.
I see. Yeah. Thanks. That is all from me.
Okay. Thank you, Darren. Vijay?
Yeah. Hi. Morning, Gerry, and morning, Nicole. Congrats on this announcement. I think first, a few questions from me. Firstly, I know that you have been looking at this structure, evaluating the structure for a while in terms of looking at listing an onshore REIT. Has anything changed in terms of China government policies or things that has made it possible to list the REIT at this point of time? Considering that there are host of approvals you need to get from the government to list the REIT in China, and since you have made an announcement, can we say that more or less, the announcements, you have secured that announcement and more or less the REIT is going to list, possibly in three, four months at this point of time?
Okay. Thanks, Vijay. Okay. I think there is no big change in the direction of the China government. I think they want to grow
Yeah
the C-REIT concept.
Maybe-
I will let You Hong maybe
Yeah. If I may
add on that. Yeah.
Yeah. I think the C-REIT market is actually quite new. It has been there for about three to four years, and it started with more of infrastructure-linked assets. At the beginning, retail was actually not a REITable asset class. Somewhere, I think about two years ago, they actually expanded the scope and admitted this so-called consumption infrastructure, which basically refers to the mall and other type of places where people shop. I think that is where this asset class became available for REIT, and our sponsor is probably the first international one that does this.
That probably is the trajectory. In terms of the timing of, or rather, perhaps I can also share a little bit that the approval process, essentially, there were a few steps. We have actually gone to a stage where we are now at a level of the CSRC and the China Public Exchange, where it is equivalent of MAS and
SGX
SGX, and the same set of review regulatory approval is actually quite typical in the capital markets that you have seen. I think we have cleared some of the earlier works of other agencies, governments, to actually comply and be able to now submit this publicly. Yeah.
What You Hong has shared is that CSRC and SSE may be, in a way, familiar processes for our analysts here, because they are like the MAS and Stock Exchange. But the work before this, there is also NDRC that we had to basically move through in terms of the approvals, which is something that is not really like Singapore, and that is actually a large part of the work, if you ask me. We have cleared, a large part of the work now is really getting the listing documentation completed and approved.
Got it. So the regulatory items have been cleared. It is just the paperwork that is pending, and there is certainty, this REIT work.
We still need approval from CSRC and SSE, which is why we submit the application, and then they have to review the application. But rest assured that actually, we have been communicating. Actually, the whole ecosystem has been communicating with China authority, including CSRC, for a very lengthy amount of time. I would say that all indications, the interaction has been they are very supportive of the CLI group, including us, starting this REIT.
Got it. Thanks. That is very clear. Since you have got the structure in place, why not go for a bigger REIT? You just REITed out one of your second smallest asset into the new portfolio. You also have a cooling-off period of one year before you can inject more assets into it.
Obviously, there is a trading discount between onshore REIT and offshore REIT. Why not choose two, three assets or a few assets and put it in a China C-REIT in a way that could unlock value from the CLCT shareholders?
I was sharing earlier, there is a size limit for the current market. There is indeed a sweet spot to this. I think the amount that we are targeting, between us and CLI, CLD, CapitaMall SKY+, et cetera, I think is sort of in the sweet spot. Anything larger, it is difficult for the regulators to approve and the market to look at and digest. They have been used to smaller REITs with very focused, a few assets, maybe one to three assets in a bundle, so that they can be clearer about what they are buying. That has been the market development and market culture of the C-REIT currently. Which is why you cannot do suddenly a 15-asset bundle. It is too much for a new market.
There is a cap on the size of the REIT that can be listed at this point of time.
There is an implicit market mechanism. I think the regulators would look to having something out there that is simpler for people to digest.
Got it. My last question, is there any restriction from the sales proceeds you generate out of this REIT? I know that China puts a restriction in terms of to divest an asset into REIT, you need to take back the capital and plow back into some of the domestic market assets or something. Is there some sort of restrictions in here?
You Hong? But for CLCT, effectively, no, but I let You Hong explain.
Yeah. I think the China regulations do actually have certain reinvestment obligations that requires the sponsor or the originators to undertake. But I think this is the part of the structure that we actually are working with our sponsors together, and to make sure that we are able to utilize the proceed. But I think more details will be shared in the later stage, where our procedures are ready.
Got it. Sorry, just if I may check, what is the likely timeline for this deal?
By our sharing, the listing of the C-REIT should be completed by this year.
Okay. Thank you. That is all I have.
Thank you, Vijay. We have the last person that has the raised hand, which is Terence. Anybody else, if you have any questions, please feel free to bring it up. Thank you.
Hi, this is Terence from UBS. Just a question on the strategic rationale again. Gerry, you mentioned unit buybacks as users of capital this time around. But how likely
is it for CLCT to do reinvestments into China down the road, given CLI's goal of China for China, and clearly CLCR will have a more advantageous valuation as compared. I guess thinking in the longer term, is it more likely that CLCR will grow and potentially CLCT may shrink over time? Just want to check if that's a fair characterization of the landscape we see.
Okay. First of all, I think I would say that if you look at the press release, clearly both CLCT and CLCR, we are part of CLI's ecosystem. Meaning that CLI will want both vehicles to go and thrive, right? The difference for CLCT, of course, we are a conduit for foreign investors, right? CLCR is actually all domestic focused. We basically are trying to diversify our asset classes, right? So we have retail logistics business parks now. We will not rule out going into other asset classes, which will hopefully be more resilient. We are looking for more resilient asset class to grow into.
I think it's not the right characterization to say that, "Oh, only CLCR will be growing and CLCT will not be growing." What we see currently is that through this participation originators, we have ability to create a new recycling channel, and that helps us to bring back some capital from mature assets. And then with this capital, we can continue to do our portfolio reconstitution, hopefully to introduce more new assets. And these have to be China assets. Yeah. Of course, to us, China is actually greater China, right? We can do mainland China, Hong Kong, Macau, that's in our mandate. I think there's still sufficient avenue for growth for both CLCT and CLCR. The market is pretty big, right? We're talking about whole of China, whole of Hong Kong, whole of Macau, for as far as CLCT is concerned.
Of course, there are some short-term challenges. Like you know we have to like I think [Daryl] was talking about it, we have to close the NAV gap. So this is part of the work that we are doing right now, demonstrating value, unlocking some value. And as we have more capital and we have opportunity, of course, we want to invest more.
If you could help us recap, if past instances of the consumption C-REIT listings have led to any cap rate compression for the CLCT retail assets. Because I remember that the infra C-REITs listing in 2022 was kind of like a price discovery event for CLCT's, I think it was business park or logistics asset.
Terence, sorry, we cannot really hear you. Maybe you can,
Post IPO
You mentioned something about the cap rate compression, post
I can try to repeat. Are you able to hear me now?
Yes.
Yes, better.
Yes. If you can help us recap if the past instances of consumption C-REIT listings have already led to some degree of cap rate compression for the CLCT retail assets. Because I think for the infra C-REIT listings in 2022, that had led to some valuation increases, I think for either the business parks or logistics side.
For that, I think we have not observed that. The consumption C-REIT, the first batch was actually last year only. Then we have to look at the tier one, tier two, and to see the cap rate difference as well as, I think, a broader. Because to begin with, retail was probably a more liquid market than the BP, which I think at that point in time was very limited in terms of liquidity. So there is some difference there, but I think we will see. Yeah.
Yeah.
I think I will add on to that. I think there is only so far the C consumption C-REIT that has been listed, right?
Less than that.
Less than that.
Yeah.
Less than that. Probably the market effect affecting the actual cap rate perhaps will take time to flow through that. Yeah.
Okay. I guess the point being, this listing is not that much of a price discovery event for the retail asset class.
Depend on whether you look at it from the short view or the long view. You are putting it in a very definitive answer, but you have to look at things that are short view or long view. It will mirror maybe what the S-REIT market is for many of the REIT markets that have gone through, right? Yeah. As the market develop with your main transaction type, surely you will have some influence. But the question is whether you become the main transaction type. Yeah.
Okay. All the best, nonetheless. Thank you.
Yeah.
Thank you, Terence. Rachel?
Hi. I do have a quick question. Does CLCT have a limit of how much you can hold in CLCR under your S-REIT rules?
I think generally speaking, there is some breakdown of income-producing real estate versus other type of authorized investments. This is basically MAS for all the REITs. So the CLCR is, for this purpose, actually under the authorized investments. There is a limit. But the limit, we have to refer back to the MAS as well as the total deposit property of the CLCT.
Oh.
Yes.
Is this the time? Sorry, go ahead.
But the exact number, we have to look at. But I think if I recall, it's 15%.
Oh, okay. Okay, thank you. Okay. Thank you, Rachel. [audio distortion]? Are you [audio distortion], please?
Hi. Thanks, Nicole. Hi, Gerry. Thanks. Well, congratulations on this announcement. I have three questions. Two are very, very straightforward. The third one is maybe perhaps needs a little bit more of flesh. What is the restriction in terms of size, in terms of the RMB? Is it what you have, RMB 2 billion, or is it larger than that? That is one question. Does CLI need to own 100% of the assets? Those are the two straightforward questions. What is the structure of the REIT? Is it going to be like our S-REIT external manager model? I mean, does CLCT own a stake in the manager as well as a stake in the REIT? If you could on that. Does the C-REIT have an external model, or can you have an internal model? I mean, what are these?
I have no idea about the C-REIT market. Thanks.
Okay. I will take the first two, then I will let You Hong take the last one. Okay, first, restriction of size, as I checked earlier, if you look at the C-REIT that have gone out, consumption C-REIT, as well, they are talking about one to three assets, typically. The size, therefore, that we have seen are not large. As I was sharing, that is, you would say, You Hong, between two to three?
Yeah.
Two to three REIT?
Yeah. I think it's more the number of
of assets
asset light.
asset all one. They are the only one so far that went out with two.
Yeah.
Yeah.
So, as I said, they tend to one simpler bundle of assets for people to digest. In terms of the C-REIT itself, yes, you have to take 100% of the asset. The C-REIT has to take 100% of the asset. You cannot take partial stake. That is what is regulated for the C-REIT. As far as the manager structure, I think generally you can characterize it as externally managed structure, but let You Hong maybe just introduce a little bit more.
Yeah. So, all the C-REITs are actually managed by a so-called public licensed REIT manager, which I think acting as a fund manager. So, I think in our way of categorizing, it is externally managed. Yeah. But, I think the CLI, CapitaLand, currently is not able to have the license. So actually it is a third party, public fund that actually do the acting as a fund manager.
It is an external fund manager.
Just an external fund manager.
External fund manager. CLI's continued role is, they are managing the property.
Sponsor as well as the manager.
Yeah.
Yes.
Sorry. CLI's role will be the sponsor and the
Asset manager
property manager. The fund manager is the asset manager usually.
Asset manager, you see the slides here, they predominantly do, in the terms of for the C-REIT perspective, is these are guys who operate, property manage. So they manage the asset.
Okay.
Right? Versus, maybe what we term as asset manager, as a fund manager. Right.
Mm. Yeah. The fund manager, is that an unrelated party? I thought CapitaLand had a license for their equivalent of like a Capital Markets Services license.
Not a public vehicle. Yeah.
Yeah. Not.
Maybe I should ask this to CLI, but does CLI plan to apply for something that, this sort of fund management license?
This question could be for CLI. We cannot really give more details than we know right now.
Okay. The fees. Okay, in terms of the fees, what happens? Does it go to CLI, or does it go to this external fund manager, or does it go to both?
There will be fees to the fund manager, and there will also be the
Property management fee
whether you call property management or asset management fee to the operations manager, asset manager, to the CLI, yes. There will be different fee agreements governing that.
In Singapore, you can set your own fee structure within certain limits. What happens in China then? Does the fund manager get a certain set fee? Is it the same for all these consumption REITs? For the property manager, is it more like the Singapore way, and you can set a certain fee depending on the, within certain limits? Because, I follow the fee structure, so I am just wondering what happens here.
I would say that it actually follows the local or China capital market norms. We are not the first one, or rather, CRI is not the first one actually sponsoring a REIT because there are other REITs. It will be benchmarked against that, but it could be different from how the Singapore market actually charge. There will be some difference, but I think the details of which will then be on the China side of the disclosure to the regulators. Yep.
And this, will it be in the circular?
You mean the structure of the. I think it depends. It is going to be publicly available in the China market when actually during that regulation approval. For us, the relevant information will then be presented to our unitholders in the circular.
Okay. Got it.
Yeah.
Okay. CLCT unitholders will only be looking at the fees based on the percentage of the 20% that you own, right?
Yes. Not 20%. It depends on the stake. You are talking about, sorry.
Okay. Yeah, your stake in that 20%.
That is right.
Right. Okay, thanks. I think that is all for now, but I have lots of questions on this thing because you have got so many other assets in China. You have got Hong Kong, Ming Huang, those big malls, but only portions of them. But that will be all for another time. Thanks.
Thank you.
Thank you. Thank you, [audio distortion] . Can I pass the pen to [audio distortion], please?
Hi. Thanks for taking my question. I just have a quick check. Given that it is an onshore-only structure, is there any regulation restricting C-REIT proceeds from being allowed to be repatriated out of China?
As I mentioned, there are regulations around the IPO proceeds in relation to a reinvestment obligation, but I think we will work with our sponsor as to how to make sure that we can utilize the proceed, and the more details will be shared at a later stage at a circular level. Rest assured, our intention is to bring back the cash because the big reason is we want it for our own financial flexibility.
Thanks very much.
Okay. Oh, yes, Rachel. Thank you. Rachel, yes?
Yes. Hi. Thanks, Nicole. Sorry, just one very quick one as well. In this table, CLCT has a ROFR to the pipeline of assets under CRI, is that right? But the CLCR will have a ROFR or C-REIT do not really have a ROFR?
Thanks, Rachel. C-REIT do not have a ROFR. Only CLCT have a historical ROFR on certain vehicles in CRI.
Okay. Moving forward, CLCR will not have any ROFRs as well?
Yeah, there is no ROFR. It does not start with a ROFR.
Okay, got it. All right. Thank you.
Do we have any last questions coming through? Okay, if that is the case, thank you everybody for joining us today. Thank you, Gerry. Please feel free to reach out to me if you have any further questions. Thank you and have a good day. Thank you. Thank you, everyone.
Thank you.