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Edited Transcript of AU8U.SI earnings conference call or presentation 7-Feb-20 2:00am GMT

Full Year 2019 CapitaLand Retail China Trust Earnings Presentation

Singapore Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of CapitaLand Retail China Trust earnings conference call or presentation Friday, February 7, 2020 at 2:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Tze Wooi Tan

CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited

* Yu Qing Chen

CapitaLand Retail China Trust - Senior Manager of IR - CapitaLand Retail China Trust Management Limited

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Conference Call Participants

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* David Lum

Daiwa Securities Co. Ltd., Research Division - Regional Head of Banking and Finance

* Derek Tan

DBS Bank Ltd., Research Division - VP

* M. Khi

JP Morgan Chase & Co, Research Division - Analyst

* Wai-Fai Kok

UBS Investment Bank, Research Division - Research Associate

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Presentation

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Yu Qing Chen, CapitaLand Retail China Trust - Senior Manager of IR - CapitaLand Retail China Trust Management Limited [1]

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Good morning, ladies and gentlemen. Welcome to CapitaLand Retail China Trust Full Year Results Briefing. I'm Nicole. I'm your host for today.

To kick off today's session, we have Mr. Tan, Tze Wooi, CEO, who will be bringing you through the presentation. Following that, we will have a question-and-answer session. Mr. Tan, please.

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [2]

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Thanks, Nicole. Good morning, everyone, and welcome to our 2019 CRCT's Full Year Results. A very belated happy Lunar New Year of the Rat to everyone, wishing all of you good health and immunity.

I'll quickly take you through some highlights of CRCT for the year, touching a little bit on the financials, the capital and also some portfolio actions, before leaving some time also to discuss a little bit on our business entering 2020.

2019 can be considered a landmark year for CRCT. I think we have done quite a lot of the portfolio reconstitution that we have embarked on. We focused and we did quite a lot of acquisitions and divestment, churning the portfolio, optimizing the portfolio, strengthening its attributes and also improving its earnings quality. Along the way, we did our largest equity fundraising, which is very well received. And if you look back 1 year ago, our market cap improved 46%, and we delivered a total unitholder return of 25%.

If you look at our portfolio and footprint today, we are very diversified around 9 cities orientating towards the Tier 1 and the provincial capital Tier 2 cities. And our asset size and our GFA has improved. Due to the timely acquisition of the assets, our full year results in terms of the revenue and the net property income has been uplifted, as you can see the 10% and 15% uplift, and contributed by the Rock Square's good improvement and also the other multi-tenant malls growth, buffering a little bit on the preterm of the Erqi as well as a little bit weaker performance seen at Zhengzhou. Overall, the DI has improved 12.6%, delivering a core DPU of $9.08, which reflects a 2.1% year-on-year growth.

Our portfolio has also ended the year strong. As you can see, the rental reversion healthy at 4.7%. This is at fourth quarter. If you look through at the full year, it's 6.4%. Due to the incoming contribution of the new assets, our sales as a portfolio and shopper traffic has also increased year-on-year, both at the 4Q and also at a full year level.

If you strip out the new contribution, there's a slide later that I'll take you through on the same portfolio effect. I mentioned that our portfolio has now, due to the new acquisition as well as the taking over of the new asset, the Yuquan , and also the property valuation uplift, we are reflecting a RMB 20 million, 26% improvement. Occupancy remains very healthy at close to 97%. On the financial side of things, we've also been very prudent in managing. We are fixing our interests at 80% and also the FX hedging to bring back the distributable income into Sing dollars at 62%.

This is the rundown of our fourth quarter numbers. I think the thing to highlight a little bit is in the -- is it clear? Clear? Okay. So I think the row that I want to highlight is in the income available for distribution to unitholders of $33.6 million. This reflects the one-off due to the master lease termination that we have recorded, which reflected 46.4%. After retaining close to about 5%, if you look at it from a full year level, we are distributing at $28.4 million of distributable income, which brings us down $0.0234 for this period. And against the closing price of yesterday, a healthy 6% distribution yield.

This is the full year effect, as I mentioned, in the line of the $110.8 million distributable income, income available for distribution. That comprises the one-off compensation, and after retaining, we are at $105.5 million. And this is the full year, bringing it down at a core DPU level at $0.098, which is a 2.1% improvement versus a year ago.

At the balance sheet side, I think nothing to worry too much in terms of our current liabilities and also the bank borrowings, which there's a slide to take through. Our NAV is at $1.55, and after netting the distribution, $1.51.

This is the key dates to take note. And for this period of distribution, we are also continuing the program on our DRP. So some of the dates for you to take note.

This is the distribution yield; I think it continued to be a good instrument at a spread to the relative index.

Gearing, we'll end the year at 36.7%, which is within the expectation that I think I've shared with you during the last quarter's results briefing. Average cost of debt has also been maintained at below 3% in terms of the interest cover, and the unencumbered also slight improvement relative to a quarter ago. And because of the shortening of the debt that we are supposed to refinance, we are at 2.84 years.

But if you look across the debt maturity profile of those debt, I think we are very well spread out, well staggered. So within each, we don't have a lot to worry on. For the 2020 tranche, we are already receiving very firm commitment from banks, and we are confident to refinance it at very competitive rates for those coming up in 2020.

We did the valuation as at the year-end. As you can see, the 2 leading malls in the portfolio reflecting a valuation uplift essentially tracking the NPI improvement. And the 2 assets, as you know, that reflected a little bit of operating difficulty has also taken a little bit of a valuation downside. But as a whole, I think our portfolio continues to grow healthily at about the 2-over percent, and factoring the new investment coming in, our portfolio has grown in size. On a year basis, I think our portfolio continues to be very strong. And if you look at the -- especially the Tier 1 assets, I think our valuation can be considered still at a prudent level.

Occupancy rate, I mentioned, I think, as a portfolio, we continue to be strong at the 97%. Minzhongleyuan continues to be a big asset in our portfolio, as I've mentioned, and this reflects also the tougher operating environment that we see entering the last quarter of 2019 and also going forward.

Reversion wise, I think fourth quarter, as a whole, I think, at close to 4.7% as a portfolio. Again, the 2 assets that are proving harder to get term leasing bargaining power, you can reflect that slight rent reversion downside as we try to improve its tenant mix in Qibao and Minzhongleyuan.

I think the full year also gives you a good sense of where we land. If you look at the 2 strong assets, mature assets of Xizhimen and Wangjing, I think we'll continue to be able to extract pockets of opportunity when leases are up for renewal, and you see us proactively subdivision -- subdividing, creating better retail mix. And overall, we are still driving the rental growth.

This is just a quick scan of our reversion trend over the last 5 years, basically, very healthy.

Expiry profile for 2020. I think the key to take note, it's Yuhuating, which is the asset that we just completed acquisition. I think we are looking at preparing the AEI program, which is why you see more leases coming through for renewal in 2020. So this is a window where we will put in place AEI program that will bring us to 2021. I think this is the asset that in 2021 there will be good upside once the AEI program kicks in.

Expiry profile with the exit of the Zhengzhou master lease, you can see in terms of the WALE starting to come down. That reflects a multi-tenant portfolio shift.

Traffic, I mentioned earlier, because of the new addition of that new acquisition, our portfolio traffic in terms of fourth quarter and full year has improved. If you strip out the effect of the new ones, even the organic, same portfolio in the fourth quarter, we are growing at 4%. And if you roll it out in the full year, we are growing at 2-over percent.

Quite a similar picture at the sales front. If you look at the portfolio on its own, the organic, we are growing at about 1%. For full year, it's about 2-over percent.

These are some examples and illustrations that I thought just to share with you a little bit on what we have been doing to extract value and continue to expand our offerings to make our mall the people of choice, for people to come, and some of these examples, I mentioned, there are always opportunities for us to look at reconfiguring units and also subdividing and drive rental growth. Some examples that we have done in fourth quarter, happening in Rock Square and in Wangjing.

And over at the 2 new malls that we have acquired, we continue to work hard the assets to deliver retail concepts and looking at partnering the retailers of today, bringing a little bit more immersive retail experiences to connect with a younger crop of the catchment. You can see us doing a little bit of this in Xuefu and also at Yuhuating.

And happy to share with you that, you'll recall about 2 years ago, the railway station that Xizhimen was sitting on top, they actually shut it down to upgrade it. Towards the end of last year, they started to open this connection. So this is the starting stop that will take people from Xizhimen all the way to the Zhangjiakou area, which is going to be the winter -- 2022 Winter Olympics site. So now going to these places is very, very convenient, and it has also shortened our travel time from Beijing to Hohhot to 2.5 hours. So with this reopening, you can see a lot of throughput trespassing Xizhimen which is why, as a portfolio, Xizhimen reflects quite a good traffic growth in fourth quarter. And some of the other things that we have done to continue to attract younger people into our mall includes a little bit of improving the shop experience, rejuvenating areas and creating areas for people to share moments.

These are some of the activities that we have done to connect with our shopper catchment, and we always use very good calendar events to invite people, connecting our staff, employees, our tenants and also our CapitaLand members to participate together.

As we look into 2020, I think I thought this slide shows you what CRCT has been really embarking on in the last 3 years. You can see us wanting to rejuvenate the portfolio. We churn it, and we optimize it, make the portfolio stronger and income diversification stronger. You can see this happening across the assets front, the NPI front, and GFA and the number of properties. So I think this is really what we are trying to move CRCT's portfolio year-on-year.

And we'll continue to work on this focus, on these strategies to create, to unlock and also to extract, which I have some examples to share with you. Today, we also announced the divestment of Erqi, which is a master lease mall. If you can recall, I've been sharing with you that this is noncore to us in terms of footprint and in terms of asset, we don't really actively manage. Also, it's a single tenant. We are master leasing it to a very dated department store format, whose business is also facing quite a tough operating environment. So I think coupled -- all these considerations, I think we had a good timely execution. On one front, we have had the termination. On the other front, we executed the divestment timely, resulting in recycling close to about $160 million of proceeds and reflecting a gain of close to $13 million, and we divested it at 20-over percent above our last-carried valuation. And along the way, we reduced our portfolio concentration to department store to 1.4% and also bring down our largest tenant exposure of the whole REIT to 4.1%. So this will come in handy as we enter 2020.

We've also taken over the Yuquan property. This is part of that swap deal in Inner Mongolia. And I think we are very excited. I mean, you look at the market, I think we are one of the top brand landlord for retailers who want to enter this market to partner with. We like this opportunity because it really gives us a white piece of paper to embark building on a new retail mall that we inject very new and unique experiences that I think the current marketplace is somewhat lacking. So we've taken over this mall towards the end of last year. Good things to share with you; the first line, the MRT in Hohhot, is already operational, and that's the first line. The second line, we expect it to also turn operational end of this year. And it is this second line that there's a designated stop that is directly connected to our Yuquan mall. So now we are preparing all the fit-out plans, the asset plan and the listing program, and I'll share with you a bit more as each quarter comes along in 2020.

This is a little bit on what we intend to do and some of the artist impression. This is roughly the framework that our asset plan would dive into.

And we'll continue to work our Rock Square. I think I shared with you also during the acquisition, we are really looking at the 2018 to 2020 window, where we see almost up to 50% of the rental renewals coming to us. In the year of acquisition, 2018, this is exactly what we have been focusing, to upgrade the positioning and also the brands. You see us bringing a lot of new leases within our network pool, and we bring it there. And many are first-time into Guangzhou market or that catchment district. And along the way, we achieved rental reversion of 20-over percent successive years. And we have also moved the NPI yield; from 2018 when we bought it, it's about the low 3 to 3.7%. And building on the 2018 with a good foundation, and you see 2019, we take steps to do a bit more program in terms of unit reconfiguration, where sometimes you have to buffer a bit of downtime. But we're also happy that we have injected a lot of new concepts along the way and completed 7 reconfigurations. And again, the rental reversion has been strong, and that has brought our NPI yield to be 4.4% level. So we continue to build on these 2 years of foundation and propel the NPI yield to the higher force range that we have communicated earlier.

As we end the year, I think -- or rather, we start the year, I think the -- this Chinese New Year has not been easy for a lot of our Chinese colleagues and also the Chinese -- our business partners. We thought we'd just share some of the things that we know from the ground with you. I think ever since the 23rd which happens to be the eve of the Lunar New Year Eve, I think that's when the Wuhan starts to suspend the public transport in order to take actions to contain the virus spread. So we see a lot of decisive actions being taken by the Chinese government to contain it and travel restrictions expand to the other provinces and other cities as well. And if you look at all these local directives being directed to contain it, we participate and we work very closely with the local government to help support them. And some of the measures that we have taken is to shorten the malls' operating hours, and we also limit all this kind of mass gathering kind of activities in our malls. And selectively, where we need to shut down the mall, for example in the Wuhan case, we shut it around the 24th until new directives come along or conditions permit for us to open. But I think the thing to take note is that Minzhongleyuan is a very, very small asset within our CRCT portfolio. In terms of income, it's almost negligible. So I think the closure will not have any impact at all to our rich portfolio performance.

At the property level, I think these are some of the very active measures that we have taken to ensure the well-being of our staff, our tenants, our shoppers are taken care of. And you see CapitaLand actually being one of the very first few to create these funds to help the locals. And it's not easy, because they are very short on medical supplies and necessities. I think this fund actually assist them to bring all these things to the needy.

What it means to us short-term wise? I think there will be impact. I think you already see impact in terms of shopper traffic and in tenant sales. I think that's precisely because of the -- especially the first 6 days of the Lunar New Year. Because of all these measures taken, essentially, there are very few people that will be out in the streets, and there are very few people who are able to go back to the own business premises. So short-term wise, we expect a bit of difficulty on that front.

Being long-term business partner with our retailers, I think, especially with this week and next week when most people are going back, I think we'll sit down and talk to them and understand their challenges a bit more. And I think as a landlord, I think we'll look into offering them a specific policy that will help them ride through this temporary challenge.

We're also very keeping abreast of what the government's general support policies would be to stabilize. I think so far, you already see snippets of things coming out, like reducing the interest rate, probably reducing some of the corporate taxes. I think these are some measures that locally, we'll be very close to the local government in understanding which of these policies that we can also enjoy. So this is something that we will be keeping abreast on. And depending on how the situation evolves and how long these things last, I think there will be also corresponding measures that we stand ready to respond where we need to.

But having said that, I think we hope this event or (inaudible) can sort of like be a bit more clearer. If you look at some of the headlines these few days, I think there are good positive signs in that. Every day, I think they confirm new cases. I think in the last 2 days, the numbers reported has been less than the previous day.

Overall, long term, we remain confident in the China market. The China market continues to be our core focus market. We take a long-term view. I think we will ride through in the short term using CRCT's strong financial position.

I think with that, I probably end the presentation and spend some time on the Q&A to answer a bit of more queries that's on your mind. Thank you.

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Yu Qing Chen, CapitaLand Retail China Trust - Senior Manager of IR - CapitaLand Retail China Trust Management Limited [3]

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Thank you. So now I'd like to invite Tze to take a seat together and be joined with Joanne, our CFO; and You, Hong, our EVP of IPM, to answer your questions that you have, if any. Please reach out to the nearest microphone and ask your questions in it so that we can take it down. Please also state your name before doing so. Thank you.

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Questions and Answers

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Derek Tan, DBS Bank Ltd., Research Division - VP [1]

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Derek from DBS. Just two questions for me. Could you give us some color on your malls, especially in Beijing and Shanghai, the Tier 1 cities? Are they impacted in a big way because of the virus in China?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [2]

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As we're sharing, the general market is such that during that Lunar New Year period, there is a lot of local directives being pushed out essentially with the objective to contain the virus spread. So most of the malls operating on shortened hours. Just to take an example, we used to open at, say, 10 to 10. For some of the malls, we see them maybe closing earlier, some at 8 PM, some at 6 PM. So there's a range of all this. And we're actually taking guidance from the local government in supporting some of these measures. There are also certain malls on the ground where because during that period, it's literally very difficult for the tenants themselves because they are lack of manpower. So I think with all this, you appreciate that really the trading hours are being shortened. But one thing that the government actually wants to ensure is that the basic necessities that is supporting the communities -- take, for example, the supermarket -- this continues to be there, continues to be there trading normally. Yes.

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Derek Tan, DBS Bank Ltd., Research Division - VP [3]

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So, any, like, government kind of incentives for landlords?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [4]

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This is that -- something that I was mentioning that there are snippets here and there being released. I don't think they have -- like what the Singapore government had done during the -- I remember during the 2003 SARS period, where they come out with a SARS relief package. I don't think the Chinese government has reached that stage yet, but there are local governments coming out with a little bit of guidance that there will be some tax release, so on and so forth for certain enterprises. So I think there is some journey for us to go to understand a bit more how this can be applicable to us and how we can latch on to this.

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Derek Tan, DBS Bank Ltd., Research Division - VP [5]

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So my last question. So congrats on the sale of Erqi. I'm just wondering, what are your thoughts about redeploying? So in the near term, there'll be some earnings hold, right? So would you top-up first before you deploy the cash?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [6]

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Yes. If you look at the income available for distribution, it's with that in mind that we have retained a portion of that distribution this quarter so that you can come in helpful to buffer that income lost, so to speak, as we end up on the divestment. So if you look at the amount that we retain, ballpark is the amount that will last you the divestment complete. Yes.

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M. Khi, JP Morgan Chase & Co, Research Division - Analyst [7]

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Tze, Terence from JPMorgan. Can I get a sense of how tenant sales and footfalls are in -- post this virus?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [8]

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I think a better monitoring period would be next week onwards because of the very fact that if you look at how the government has sort of extended a few times the Chinese Lunar New Year period official holiday, first to 2nd of Feb, which is essentially this week. But if you look at all the cities that primarily we are in, the local government has also asked companies and a lot of corporates to extend for a further week. So I think based on anecdotal what we know, the next week will probably be the window where most people are going back to China. And last week and this week, still a lot of travel restrictions are still in place. So I don't think the market has been back to its normal kind of mode yet. To answer your question directly, if you just look at the official CNY period this year versus last year, traffic has significantly dropped, precisely of all those reasons that I mentioned earlier, because of governments' directives and also, people are not going out and even in cities, certain cities are locked down, transport. So you can appreciate on the ground, this is -- first-order priority is to support the government to contain the virus. So I think for our first official 5, 6 days, we see a significant drop in our traffic, yes.

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M. Khi, JP Morgan Chase & Co, Research Division - Analyst [9]

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Okay. Can I also try -- because I understand that some of the landlords which are listed in Hong Kong are also helping tenants, especially those with malls in China? How -- what are the measures being considered to help some of your tenants?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [10]

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Yes. We are aware that some of these Chinese landlords or Hong Kong landlords have come out with these support measures. I think we are also considering along those lines, as I mentioned, probably coming from this week and next week, where most of the people are back, we will be engaging the retailers a bit closer. But we stand ready. I think, as I mentioned, the first, like, Lunar New Year period through the first 7 days and until subsequently extending to the 2nd and to the 9th, I think this is a very, I would say, difficult operating period for our tenants. So I think this is probably the window that, as landlord, we will probably come out with some support policy to address that. They are not even trading. Yes.

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M. Khi, JP Morgan Chase & Co, Research Division - Analyst [11]

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Okay. Will this be covered by insurance?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [12]

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Good question. This is something definitely on the back end. We and all the insurance brokers are touching base. At this juncture, it's pretty technical. So I wouldn't want to jump the gun that we are covered by business insurance or not. But we do have interruption policies. So there's certain technical criteria or conditions that have to be satisfied. So that's something that we'll work along the way, yes.

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M. Khi, JP Morgan Chase & Co, Research Division - Analyst [13]

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I guess, just a final question on the virus impact. Will this affect your acquisition policy -- acquisitions going ahead, and especially in the next, like, 3 to 6 months?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [14]

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I think from a planning perspective, on what we want to do, I think we will continue. But the plan doesn't stop. I think you saw us being very actively churning our portfolio. I think the whole momentum to optimize our portfolio, even with today's announcement of the divestment, is really in line what we have shared with you and what we intend to bring CRCT's portfolio-shape towards. So the planning on those fronts will continue. But as we all know, the execution timing is also important. The timing is also important. So we will be looking at the window to do that. I think at this juncture, it's really, really a bit early for us to preconclude that we will do or we will not do. So I think we will look at how things develop, yes.

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M. Khi, JP Morgan Chase & Co, Research Division - Analyst [15]

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Okay. Just on -- more on the acquisitions, the recent acquisitions. I noticed that the rental reversions were a bit low. Can you comment a little bit on that?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [16]

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This fourth quarter, I think with the exception of Xuefu, which reflects a very marginal, I think, 1-over percent, I think that's not something to be very alarmed. I think there are some changes of the brands that we want, to bring in a bit more desired brands, and some of that 1% drop is due to some more the children education kind of brands that we wanted to churn. So I'm not too worried about that, 1-over percent drop. If you look at the number of leases that we have renewed in the fourth quarter, I would say close to 70% or more are still positive. So this is just like, typically, in certain quarters there are certain technical moves that we do to strengthen the whole brand positioning.

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David Lum, Daiwa Securities Co. Ltd., Research Division - Regional Head of Banking and Finance [17]

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David from Daiwa. After this divestment and your capital distributions, can you give us an update of the latest capacity for capital distributions?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [18]

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We still have a balance of about $26 million, $27 million that was left over from the Anzhen divestment, coupled with the fact that today the Zhengzhou divestment that will give us about $13 million. So that brings us close to $40 million. And we have also retained about $5-plus million from the retained earnings. So ballpark, we have about $45 million, yes.

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David Lum, Daiwa Securities Co. Ltd., Research Division - Regional Head of Banking and Finance [19]

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And just to clarify, the payment you received, was that an early termination?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [20]

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You mean the compensation? That's in relation to the early termination of that master lease that we received from the master lessee. Yes, that's right, yes.

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David Lum, Daiwa Securities Co. Ltd., Research Division - Regional Head of Banking and Finance [21]

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And instead of divesting it, why didn't you consider redeveloping it? Was there any constraint on that?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [22]

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We did, David. We actually had the same thoughts as well. But after assessing the feasibility, I think 2 main considerations came about. I think it will definitely have a longer gestation. The remaining land lease is shortening. We actually had early conversations earlier with the planning. Financially, the feasibility and also the drag-out in terms of the period will subject the REIT to a little bit more uncertainty. Vis-à-vis this divestment, I think we opt for this one. I think from a financial perspective, we think that this is a superior case for us, yes.

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David Lum, Daiwa Securities Co. Ltd., Research Division - Regional Head of Banking and Finance [23]

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And just one last question. I know it's been asked before, but is it too premature to consider rental rebates for your tenants? Because you mentioned that insurance is uncertain, and there's a lot of uncertainty. But I would assume that that is still on the table, that possibility.

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [24]

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Yes, I think I mentioned that we will, as long-term business partner, I think we need to ride this through with our tenants. So I think rental rebate is something that we will consider. This is not too different from any other situations where we have granted some release or some rent reduction, depending on the circumstances. As I shared with you earlier, the Chinese New Year, day 1 to, like, day 10, essentially, the cities are more or less being locked down, travel restrictions, everyone asked to stay at home. So the trading environment is actually very difficult. So I think this is probably the period that as landlord we'll look into some kind of release.

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Wai-Fai Kok, UBS Investment Bank, Research Division - Research Associate [25]

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Wai-Fai from UBS. Say if you were to give out rental rebates, would you consider capital top-up?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [26]

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We'll look at it holistically. We'll look at it holistically. I don't think the direct equation would be, like, how much I give, how much I top up. I think, it looks at the holistically. It also depends on how long this situation lasts. But I think what is good is that we have that $45 million of so-called reserves or dry powder that can help to smooth out where we need to, yes.

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Wai-Fai Kok, UBS Investment Bank, Research Division - Research Associate [27]

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Okay. For Erqi, can you share how much was the compensation in total? So you retained $5 million, was that all?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [28]

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If you look at what we have disclosed, I think the compensation is in the order of about $10 million, yes -- Sing.

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Wai-Fai Kok, UBS Investment Bank, Research Division - Research Associate [29]

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Okay. For acquisition, do you have any pipeline from your sponsor that you're looking at? Or do you think the yield is going to be tight, and it may not be as accretive if you buy something from your sponsor? Any thoughts on that would be helpful.

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [30]

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I think the sponsor pipeline is something that definitely we'll access and leverage on. As I shared quite a few times with you, we just completed major acquisitions from the sponsor pipeline last year. We would like to build on that momentum to continue to rejuvenate our portfolio. The sponsor has also come out on many occasions that they are also looking into recycling their holdings in mature projects in China. So I think this dovetails together. As for each transaction, the thought process of arriving at a pricing level that is reasonable from both sides and (inaudible), that is 100% all the time is there. So I wouldn't say things have changed from that perspective. I earlier shared that this plan continues to be there. In terms of execution, of course, we have to look at the appropriate window to do that.

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Wai-Fai Kok, UBS Investment Bank, Research Division - Research Associate [31]

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And lastly, maybe can you comment on the negative rent reversion at Xinnan? And how long more will it take for Qibao in Shanghai to stabilize?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [32]

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In the case of Qibao, I think because of the repositioning that we are trying to achieve, I think in the short term it's not going to be easy, especially with the competition landscape coming through. I'll prefer to look at it from a whole year perspective. I mean, the thing that you're referring to Xinnan is in fourth quarter. Again, quarter-to-quarter, there's always a little bit of technical decisions that we want to make. The full year representation would be better. So if you look at the full year, we are about 2.6% up. If you look at Qibao, we are about 4.7% down. So this reflects that we are tilting a little bit of our NLA mix in Qibao. I think we used to be a bit more heavy towards the fashion. We are now tilting a little bit less and maybe injecting a bit more the children education kind of concepts. So during this transition, there will be a little bit of such negative rental reversion to that order, yes.

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Unidentified Analyst, [33]

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Tze, just a follow-up question on like for the kind of portfolio reconstitution, you have been looking to sell the master lease malls. I think you have 1 more left if I'm not wrong. How is Minzhongleyuan in your plans for longer term? Are we expecting that, given opportunities to, it will eventually also be divested?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [34]

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Yes, if you look at the portfolio today, Minzhongleyuan comprises only like what, 2.5%. So it's -- and in terms of its contribution, it's even less than point-something percent. So I think from a business standpoint, it's not going to be core to CRCT. Given the operating environment, the constraints, it's actually a very small mall. Longer-term thinking would be to look for exit. So that is on the planning, right? Short term, I think this is not going to hurt us a big way, because it doesn't contribute much to start with, yes. The other master lease is Shuangjing in Beijing. I have less worry on this one because we are sitting on very low book cost. It's in very mature area. And if you look at the 2 big anchor leases, they are looking at about in 3 years' time, they'll be gone. So we will be looking at early discussion with them. So this asset will definitely have upside as we approach the tail end of these master leases.

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Unidentified Analyst, [35]

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Tze, a follow-up question on your larger malls like Xizhimen, Wangjing and Rock Square. Could you give us a sense on, let's say, runway in terms of further extraction of, let's say, upside. I mean, you've been doing that quite well. Any more pockets of opportunity do you think to drive those malls?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [36]

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I think the pockets of opportunity continue to be there. I still remember when I was having a conversation with all of you in the end of 2018, you asked me the same question. And you see us doing so in 2019. I think in 2019, notwithstanding Xizhimen and Wangjing have been with us for more than a decade, we continue to be able to extract reversions of high single-digit to almost double. This is exactly where that proactive asset management comes about, where we look at opportunities, which are [threats] that are a bit weakening or which are threats that are trending. We can take early actions. I think the pockets of opportunity continue to be there.

With the traffic coming back in Xizhimen, I think it's a mall that is very strong from a location standpoint. We want to definitely, in terms of positioning, push Xizhimen higher as we go along. So I think there are room for us to do that. Wangjing's case, you saw us exactly demonstrating -- notwithstanding it's an old mall -- we took actions to take back the anchor space and that created that incremental jump. So these are I would say the subdivision, the space productivity areas that we'll continue to look at. Rock Square, we have done 2 years of, I would say, solid work to bring the reversions and the yield to close to mid-4%. So I think we will build on that 2 years of foundation work to prepare it to 2020. 2020, we are also continuing some of these asset enhancements. A little bit of buffer. We'll try to sequential some of these activities, such that a bit of downtime when there are upside from rental reversions, there will be of zone downtime. So this is something that we will handle along the way. But full-year wise, we are confident that these dominant malls will continue to grow.

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Unidentified Analyst, [37]

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(inaudible) from DBS. Maybe one question about Yuquan mall, given the situation, perhaps maybe higher labor costs or any higher costs and timing discrepancies with the opening of Yuquan mall given the situation now.

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [38]

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I think if you look at what we have guided, we took over the property towards the end of '19. We are expecting a 12-year -- a 12-month kind of fit-out program. So as it stands, I think we're still within range of that fit-out program to open the mall towards the end of 2020. Of course, what you mentioned earlier is something that we are also mindful and watchful over. I think things will be clearer, I think as we -- most of the Chinese cities go back to work next week or the subsequent weeks ending. We'll do that assessment in terms of the program, whether we can do a little bit of refinement and adjustment. But currently, we're still projecting end of the year for the mall to open.

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Unidentified Analyst, [39]

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Okay. And maybe one more question about buyer interest for some of the assets, especially for Minzhongleyuan. Do you see further dip in valuations?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [40]

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We have taken valuation down for this year-end. If you look at the per square meter cost, I think to start off, it's not that high relative to some of the land parcels that are being tendered out in general. So I think we are not holding it at a very high level to be very worried about. Local interest, I think we are seeking. And I think the potential buyer probably will be someone who has good business presence already in the Wuhan locality. And this being a heritage building, we are also working very closely with the government on -- so the government side will also be looking at who potentially could be the person who own Minzhongleyuan and how they can then play it out together with the government's objectives of maintaining this as a heritage building. So we are looking at such local interest. And I think when we have anything to update, we'll update you, yes.

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Unidentified Analyst, [41]

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Can I check what was the occupancy cost in 2019 and the sort of valuation cap rates? Was there any cap rates compression?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [42]

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Cap rates generally stay same versus 6 months ago for those valuers, that we have used the same valuers. Cap rates generally stay the same. Occupancy cost...

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Unidentified Analyst, [43]

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What's the percentage?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [44]

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It ranges from city tiers and also the asset. I would say ballpark is around the 5% to 6% range for most of our assets. Occupancy costs, if you look at -- as a whole of FY 2019, we are about that 23% level. Marginally higher, I would say, relative to the last time I briefed you. But if you strip out some of these assets, the range is probably still around there, like, 20% to 24% kind of range, if you look at the individual assets in the portfolio. But as an average, about 23%.

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Unidentified Analyst, [45]

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Okay. Your Q4 tenant sales was quite weak at 0.6%. Where was the drag? And what was the sales performance for the larger malls, like Wangjing and Xizhimen?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [46]

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The drag essentially came from the few weaker assets that I mentioned. The drag came from Minzhongleyuan and also some downtime. But the stronger malls are still reflecting good sales growth. It's being pulled up by Xizhimen, Wangjing, Rock Square, but a slight marginal drop in Minzhongleyuan, essentially.

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Unidentified Analyst, [47]

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Are you able to share how did they do last year for Wangjing and Xizhimen?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [48]

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They're going at about the single-digit tenant sales for all these stronger malls.

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Unidentified Analyst, [49]

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Mid-single?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [50]

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Quarter-on-quarter, different. But as a whole, I would say trending at about 4% to 5%, yes.

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Unidentified Analyst, [51]

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Okay. And for rent reversion in 2020, assuming the virus situation blows over in 1 quarter, do you think mid-single digit is still doable?

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [52]

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If you look at the rental reversion trend for the last few years, I think we have been quite on track, tracking the GDP growth. And I also mentioned that as an organic, I think the 4% to 5% kind of level is something that -- I think it's within range. In particular, expiry profile of certain assets, you see us able to extract a little bit more, like what we have demonstrated in the case for this quarter in Xizhimen and also last few quarters in the case of Wangjing.

So I mentioned earlier, the tenant sales, the dominant malls are still growing. There are a couple of weaker malls are Qibao, Minzhongleyuan. These are reflecting a little bit of weakness and Xinnan because of some fashion changes, downtime, we are actually looking at weaker tenant sales that also contributed a little bit of drag for the year.

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Yu Qing Chen, CapitaLand Retail China Trust - Senior Manager of IR - CapitaLand Retail China Trust Management Limited [53]

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Do you have any last questions? Okay. Thank you, everybody. Thank you for joining us today. I will be around for the next couple of minutes, so please just join us if you have any other things that you'd like addressed. Thank you.

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Tze Wooi Tan, CapitaLand Retail China Trust - CEO & Executive Non-Independent Director of CapitaLand Retail China Trust Management Limited [54]

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All right. Thank you, everyone.