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Edited Transcript of C38U.SI earnings conference call or presentation 22-Jan-20 2:00am GMT

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Full Year 2019 Capitaland Mall Trust and CapitaLand Commercial Trust Joint Earnings Presentation and Proposed Merger Announcement Singapore Jun 6, 2020 (Thomson StreetEvents) -- Edited Transcript of Capitaland Mall Trust earnings conference call or presentation Wednesday, January 22, 2020 at 2:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Mei Peng Ho CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited * Mun Wah Lo CapitaLand Mall Trust - VP of IR - CapitaLand Mall Trust Management Limited * Tee Hieong Tan CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited * Tien Jin Chee CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd ================================================================================ Conference Call Participants ================================================================================ * Brandon I. Lee Citigroup Inc, Research Division - VP & Analyst * David Lum Daiwa Securities Co. Ltd., Research Division - Regional Head of Banking and Finance * Donald Chua BofA Merrill Lynch, Research Division - Head of ASEAN Real Estate Research and Director * Jason Yeo Goldman Sachs Group Inc., Research Division - Equity Analyst * M. Khi JP Morgan Chase & Co, Research Division - Analyst * Mervin Song JP Morgan Chase & Co, Research Division - Head of Singapore Property * Vijay Natarajan RHB Research Institute Sdn Bhd - Analyst * Wai-Fai Kok UBS Investment Bank, Research Division - Research Associate * Wilson W. Ng Morgan Stanley, Research Division - VP * Xuan Tan CLSA Limited, Research Division - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Mun Wah Lo, CapitaLand Mall Trust - VP of IR - CapitaLand Mall Trust Management Limited [1] -------------------------------------------------------------------------------- Let's get started. Good morning, ladies and gentlemen. Thank you for joining us this morning here at the big picture for 3 very important announcements. I'm sure you have questions that you can't wait to ask, but please bear with me while I take you through the program this morning. To those of you who have joined us on the live webcast, good morning, and a warm welcome. We released the following announcements this morning after -- before market opened: full year 2019 financial results of CapitaLand Mall Trust or CMT, full year 2019 financial results of CapitaLand Commercial Trust, also known as CCT, as well as the proposed merger of CMT and CCT. We will kick off this morning's briefing with the CEOs of CMT, Mr. Tony Tan; and CCT, Mr. Kevin Chee, sharing the full year 2019 financial results for CMT and CCT, respectively. This will be followed by a joint presentation by Mr. Tan and Mr. Chee on the proposed merger. We will end this morning's briefing with a Q&A session. Without further ado, may I invite Mr. Tan to share with us CMT's full year 2019 financial results? -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [2] -------------------------------------------------------------------------------- Thank you, Mun Wah. Good morning, ladies and gentlemen. I'm sure you all want just stay in the topic next to after this. So I'll keep the briefing quite brief. It's supposed to be very brief. Anyway, the results have been out this morning, some of the highlights are already quite self evident. So I just quickly want to start the key items to note. So this gives us -- anyway, this is just for formality, just take a look at this quickly. So this is an overview of the full year. In 2019, we achieved a positive rental reversion of 0.8%. Traffic -- shopper traffic went up by 1.4%, which is an improvement from, in fact, the third quarter. We end the year at a pretty high occupancy, 99.3%, and tenants' sales has declined marginally by 1.4%. This year also marked the opening of Funan after 3 years of development. So it has been well received in the market, and Funan is trading and doing well. We also embarked on part -- or the rejuvenation of our one of the older assets, Lot One, beginning with the rejuvenation of the library and cinema, and we expect the work to be completed progressively from second half of 2020. This year, we saw the 2 -- essentially 2 issuance -- 2 capital market issuance. First one was a 7-year $100 million debt that was issued at an interest rate of 3.15%. Second one was the USD 300 million 10-year note, and it was swapped back to Singapore at the all-in interest rate of 3.223%. On the sustainability front, we continue our effort to further our agenda, and we managed to secure our first $200 million green bay -- green loan to finance the BCA-mark certified properties and to show our commitment to greening all our portfolio. And in fact, we met our 2020 target by -- after having all the properties certified by CA -- BCA Green Mark, following the certification of basically Clarke Quay, right? Just some key financial highlights. In the fourth quarter, distributable income increased by 6%. We're also very pleased to announce that the unitholder will be receiving $3.11, which is 4% improvement from last -- on a year-on-year basis. On an annualized basis, as up to about $12.34, representing about 4% year-on-year growth as well. For the full year, DPU was -- our annual DPU were $11.97, which is 4.1% improvement from last year. So I think that's probably the record that we have achieved. On the gross revenue front, if you can see the chart broken down by different property, all more registered increases except for Lot One, which is undergoing AEI understandably, and other assets, largely due to the divestment of Sembawang Shopping Center. On a comparable mall basis, which means excluding Funan, excluding Sembawang and Westgate, portfolio revenue grew at 0.6%. On the OpEx side, it's gone up by 12% for the same reason, but on a comparable basis, OpEx is even down by 1.2%. So this leads us to on NPI level, achieving for the full year 13.1% increase, and on a comparable basis increased by 1.3%. On the joint venture front, overall, it is down by 15%, but that's largely because Westgate is no longer classified as joint venture this year -- sorry, in 2019. So it's not really comparable. On a comparable basis, we are left with Raffles City. NPI increased by 1.7%. On the debt maturity front, essentially, we don't have a huge tower this year to deal with. So I think we are quite okay. We managed to achieve more than 96% fixed-rate loan. Just some other financial indicators to note. We end the year with all assets unencumbered, 100% unencumbered. Our leverage has gone down below 33%, net debt/EBITDA improved from 6.7x to 6.4x, and our average term to maturity went up to 5 years. Average cost of debt remains about the same, and we are still having the A2 rating from Moody's. On the valuation side, for the second half, we clocked in a $149 million in CMT, and in Raffles City, our share of the valuation gain is $17.6 million. All this valuation gain are largely driven by improvement in our financial performance. Funan clocked in nice gain, largely because of the lower-than-expected costs in the development. Just some portfolio update. Rental reversion, I mentioned earlier, went up by -- for the full year 0.8%. But if you look at Atrium, there was a large markdown of negative 6.5%, it's essentially due to a change in 1 of the tenant, 1 media anchor from a bank, financial institution to a more lifestyle trade. So we've brought in a lifestyle trade into Atrium, resulting in -- [Atrium lost space], resulting in a 6.5% decline. If you take that out of the equation, Atrium will have probably in a 1% improvement in the reversion, and overall impact of the portfolio would have been a 1.1% improvement. We achieved a high 99.3% as of December 31, as you can see from the chart here. Lastly, I think majority of the property has improved in the occupancy side. So I think I'll stop here, and I promised to be brief, and I'll pass the mic to Kevin to brief you on the business results. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [3] -------------------------------------------------------------------------------- First of all, before I begin, I have to make one big apology for the very last-minute cancellation or rather rescheduling of our results briefing last night. So for those who actually came all the way down and got turned away at the door, I apologize. Okay? So really a good morning to all of you. Let me just get to the slide. Really happy to share another good set of results to cap off 2019 for CCT. Just some highlights for 4Q 2019. Distributable income increased 5.5% year-on-year to $87.6 million, right? DPU for the quarter was $2.28, a 2.7% year-on-year increase. And increase in DI was due to higher portfolio NPI and higher tax-exempt income attributable to our new acquisition, Main Airport Center. The higher net property income was driven largely by higher revenue from 21 Clarke Quay arising from our step-up rent from the 1 extension in Capital Tower. Of course, we also saw a full year -- full quarter contribution from Main Airport Center post acquisition, and this was offset by the inclusion of operating expenses for Main Airport Center. For the full year 2018 -- for full year 2019, distributable income increased 4.9% year-on-year to $337.6 million, while DPU was an auspicious $8.88, a 2.1% year-on-year increase, not deliberate, really $8.88, okay? The nice and powerful Chinese New Year, which is around the corner. The increase in distributable income was due to higher net property income, lower interest expense arising from lower average cost of debt and then tax-exempt income contributions mainly from Galileo and Main Airport Center. Similar to 4Q, the higher net property income was largely attributed to a better performance from a 21 Clarke Quay, Asia Square and Capital Tower. In the case of our German assets, we saw a full year contribution from Galileo versus roughly half of year last year, and of course, we saw also a full quarter of contribution from Main Airport Center. This, as you all know, was offset by the divestment that we did last year of Twenty Anson in August of 2018. So for the total year 2019, CCT delivered a total return of 18.8%, again, derived through unit price appreciation and dividend distribution. Our unit price increased 13.7% for the full year, one of the highest among all the S-REITs in Singapore. Our investment property value -- little bit small, but our investment property value as at end 2019 increased by approximately $0.5 billion. Again, this is a full year-on-year comparison, full year December '19 versus December '18. And this was largely driven by our acquisition of Main Airport Center, contributing $385 million, and then the rest of it was from our Singapore property portfolio where we saw an increase of about $125 million year-on-year in part due to asset performance -- improved asset performance, marginal compression in our capitalization rate of about 5 basis points and also the appreciation of our Raffles City hotel assets following the completion of Fairmont and Swissôtel upgrading. The -- at the end of 2019, our portfolio committed occupancy, including our German assets, was 98%, while that for our Singapore portfolio was 98.6%, higher than the CBD core number of 95.8% for 4Q 2019. Our leasing team, kudos to them, worked tirelessly through the year to conclude 1.36 million square feet of new and renewal leases and achieved a retention rate of 82%, so that's a really good result from the team. We are really on track to positioning our portfolio for growth. Asset enhancement works for 6 battery road that we reported, and our intentions to start this year have begun. And as far as capital string, we've increased our precommitment occupancy rate to 34.8% from 31% a quarter ago. At the end of December, the finance team kicked in. We established a sustainability financing framework for the future issuances of sustainable debt, and really this is about enabling CCT to diversify our funding sources and also to widen our debt investor base, right? We issued our first green bond, a JPY 10 billion debt facility due 2027, and the proceeds were swapped into Sing dollars at a fixed rate of 2.84%. So through prudent and proactive capital management, our aggregate leverage has gone down marginally to 35.1%. The percentage of our unencumbered assets has increased to 91% from 78% in the previous quarter. This was because of the repayment of the debt that was linked to CapitaGreen. Our average cost of funds was reduced marginally to 2.4%, and our NAV per unit increased marginally to $1.82 per unit. So as highlighted earlier, total distribution for second half 2019 was $4.48. If you recall, we made an advanced distribution of $0.62 on 29th of August last year. This was post our private placement in July. So the balance of $3.86 is expected to be paid out on the 28th of February 2020. So with this, I'll end my presentation for full year results. Tony and I will now share the floor to present our big announcement. -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [4] -------------------------------------------------------------------------------- (foreign language) So good morning, again. Let me -- I'm sure you'll have been waiting for this moment. Kevin and I are actually very excited today to be here to present to you the new vehicle that we are talking about, essentially, the proposed merger between CMT and CCT. Both CMT and CCT, we are the best-in-class in Singapore in our respective area. Therefore, we see this merger as really a merger of equal, leveraging on each other strength, creating a platform that opens up new horizon for growth drivers. We think that with the combination, we will be creating the best-in-class portfolio, comprising retail office and now even integrated development. With the enhanced size and scale, I think we are uniquely positioned to capitalize on large scale -- sorry, we suppose to show you the handshake. It's a little bit belated, but we do it now. Ultimately, this is really a merger of equal. And I think we've been sparring a lot and sharing ideas. And today, we are coming together to consummate this marriage. So with enhanced skills and size, I think we can capitalize on large-scale opportunity, whether it's acquisition or redevelopment, better than what we can do on our own. So this transaction is going to be conducted by way of a tuscan arrangement. So essentially, for every unit that unitholder owns in CCT, you will receive 0.72 units in CMT and a cash of $25.9, very simple math. That works out to be about -- from a split equity -- cash ratio split perspective, roughly around 88% to 12%. So if you look at this chart on a combined basis, especially on the pie chart on the right, you have a very nice balanced portfolio, really unparalleled in the market, split quite equally between retail office and integrated development, which is one and new -- next driver that we are looking at. Although investors like both CMT and CCT, essentially, because of our Singapore portfolio. By coming together, we are not diluting that effect. In fact, the enlarged portfolio will still be predominantly Singapore focus, but we have a little bit of leeway now to look at overseas investment, right? So we put a 20% here. It's not a target. It's something that we want to signal to the market that we are not going to go overseas. But in the absolute term, actually, the firepower is quite great. 20% on a -- and larger base represent about $4.6 billion, that's a sizable market. Upon merger, the -- our focus will continue to look at retail office, we will not change. But now we actually enlarged to look at the larger scale kind of integrated development. In fact, within CMT, we have already started our -- the process. If you look at full line, essentially is looking at integrated development, even for CCT, they touch a little bit on capital stream, which essentially comprises some element other than office. So this is not going to be something new, right? Upon merger, you can see on the right side, that's how you look like. Essentially, CCT will become a subchoice of CMT. So quite simple structure, right? So to this merger, we see a few benefit, right? First, I think it reinforced our leadership position, certainly will be the big -- largest in Singapore and propel us to #3 in Asia Pac. That's I think a differently -- yes, putting ourselves up there in the market now. We can compete with the best in the class in the world essentially. You also -- a better position us for further growth opportunity. Like I mentioned earlier, we can look at larger size, scale, including integrated development. And most of you will probably know, integrated development, usually, the bigger size can be sizable. So with a -- on a combined basis, we could look at something even broader now. That give us a lot of optionality. And putting all this together, you saw this pie chart, the 3 key component: retail office integrated really ring-fence our portfolio and enhance our resilience to market cycle. So we have that optionality to look at different market cycle. Today, maybe office. Some days, maybe retail. But because we have the expanded mandate, I think we have a lot more leeway to do. So -- and of course, importantly, I think this deal is structured to ensure that both side of unitholders benefit from accretion just to cap it out, right? So I'll pass the mic to Kevin. Kevin will elaborate a little bit more on some of the points I mentioned earlier. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [5] -------------------------------------------------------------------------------- So really, what are these pillars -- can you hear me? We have got a -- okay, good, very good. So what are these pillars of leadership, growth and resilience that Tony talked about, right? First of all, resilience is about strength, right? CMT and CCT, each have our best-in-class retail and office platforms, right? With proven track records of portfolio performance and value creation, CMT has got a very balanced portfolio of very well-located, very well-connected assets, both suburban and central. CM -- CCT has a widest footprint of assets in the CBD and also the largest asset of -- a portfolio of grade A assets in the CBD, right? We are heading into this merger as equals from a position of strength to create an even more robust and efficient platform. And that also leverages on our considerable experience as partners since 2006. If you all recall, between CCT and CMT, we acquired Raffles City in 2006. So we've been actually partners. There's no need for marriage already, we already married since 2006, right? Leadership is also about dominance, being -- we will be, by far, the largest Singapore REIT. We will also when merged, become the third larger -- the third largest REIT in A-Pac. The enlarged scale will allow us to compete even better in Singapore and also in developed markets to drive new opportunities for growth. And the developed -- and the merged entity has all the right ingredients to attract greater visibility, generate even higher trading liquidity and increase -- and possibly enjoy an increased potential for positive rerating, right? All the factors that investors are looking for. Growth. What is growth about growth? Growth is about -- growth will come from having the optionality to invest. And not only Hieong shared that the merged entity will be predominantly Singapore focus, with up to 20% overseas in developed markets. So we will continue with this push-and-look for opportunities to grow and add value in Singapore. But when you have a $23 billion investment portfolio, that's only 4% invested overseas, we really have plenty of headroom to hunt for large accretive acquisitions across developed geographies without shifting our focus in Singapore. Growth also comes from capitalizing on our combined domain expertise. We each have proven track records of pushing boundaries, repositioning our portfolios and also evolve -- and also staying abreast of evolving real estate trends. So I'll ask you to think of Funan, which CMT completed recently. A couple of years back, we saw -- CCT enjoyed an uplift from the completion of CapitaGreen, and we are certainly looking forward to a new uplift when CapitaSpring is completed first half 2021. So we will continue to leverage in this expertise to drive office and retail investments and increasingly integrated commercial developments. Growth is also about capitalizing on future resi trends. As we all are very, very well aware, occupier sentiments are shifting, shopper preferences are changing. There's also a growing focus on urban planners on rejuvenation, on intensification of land use. And this is driving the market towards more integrated -- integrating retail and office offerings. So this really reinforces the rationale for CMT and CCT to converge, to capitalize on this trend and also future-proof our assets, which in the real estate business is critical. You always need to think about future-proofing your assets. Growth can be derived from the optionality and flexibility to undertake larger redevelopments within the portfolio to drive future growth, future income streams. Both CMT and CCT have enjoyed uplift. I talked about that just now, Funan from CCT, CapitaGreen and CapitaSpring upcoming. The merged entity will have a significant development headroom, just assuming the maximum of 25%, the 10% plus, additional 15%, if we get unitholder approval for assets that we hold -- held for the last 3 years -- at least 3 years. Our development headroom is a significant advantage of 6 -- we have a significant development headroom advantage of SGD 6 billion, unmatched by any Singapore REIT. And then this combined with an enhanced debt headroom of $2.9 billion, which, on our own, we will never smell or breathe or aspire to, right, that allow us to really act more swiftly, to seize opportunities when they arise and also gives us the flexibility to undertake larger transactions, portfolio advancements and reconstitution initiatives. As we grow, being a REIT, we're always also very conscious about making sure that we continue to deliver sustainable distribution to our unitholders. Our home base must be covered. So our combined size and balanced diversification across retail, office and integrated commercial assets will result in a more resilient platform. And this provides a hedge against market volatility and improved ability of the merged entity to compete through cycles. So as individual platforms, we will invariably on our own go through different cycles, right? Sometimes, resulting in us being sometimes more competitive and sometimes less competitive. But as a combined entity, our platform becomes more balanced, and we are able to control and invest through cycles. Resilience is also about reducing single-asset concentration risk and income vulnerability. If you had to compare the top 5 NPI contributors in terms of assets of the merged entity versus that of CMT and CCT. For CCT, it reduces from 83%. Currently, the top 5 assets in CCT portfolio contribute 83% of our net property income. With the merged entity, as we end -- as we come 1 with our CCT, debt reduces to 43%, a significant drop. For CMT, it reduces from 51% to 43%. And this increases the flexibility to undertake redevelopments or asset enhancements because the income impact from such projects is reduced. Yes. So it's strong -- then translates -- in fact, it translates to stronger value creation in the longer term while supporting stable distribution in the near term. So whilst we outlined the benefits of leadership, growth, resilience that will drive performance in the near to longer term, I think the immediate financial benefits of this transaction are also very important and something which any -- all unitholders hold to heart. For CMT unitholders, the transaction will be DPU-accretive. Based on our full year 2019 distribution of $11.97 that Tony just reported, the pro forma DPU accretion is 1.6%. For CCT unitholders, the transaction is also expected to be DPU-accretive. And based on our very auspicious $8.88, right, the pro forma DPU accretion is 6.5%. -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [6] -------------------------------------------------------------------------------- Thank you, Kevin. So let me just sum up a few points that Kevin elaborated so that you end this -- leave this place with a clear mind, right? The merged entity will still be predominantly Singapore focused. I think we need to emphasize that, an investor like us to be that way. So upon merger, although CCT has ventured out to overseas in Germany and represent about 4% of the portfolio, but our focus will still be Singapore. But having said that, I think we talk about the $4.6 billion is a big firepower that we have without changing the nature of the merged entity, still predominantly Singapore exposed. We will continue to invest in retail, office and now integrated development, depending on the market cycle. So we have a lot of optionality now. And with multiple drivers to create value, it will be supported by a very prudent capital management. So I think we will still instill that very disciplined capital management going forward, right? So both of us are very excited to -- about the prospect and the future. I think -- we think that we can deliver a lot of value to both the combined unitholders. In fact, there are quite many of them are already -- they already own CCT and CMT collectively. So I think the [unrivaled] interest is there. So let me introduce the new CapitaLand Integrated Commercial Trust. This is what we plan to name it. Essentially a combination of CapitaMall Trust, CapitaCommercial Trust. We will be the largest in Singapore, for sure, by far. And we will be the third largest in Asia Pac. I think we will be a major player out there. And supported by key attributes to member -- leadership, we are cementing our position in leadership position. We are creating growth opportunity, multiple growth driver, and we are actually enhancing the resilience of our portfolio. So these 3 attributes, do remember: leadership, growth, resilience. There's something that CapitaLand Retail Integrated Commercial Trust represent. With that, we end here. Thank you. We're happy there's some question. The next one is just a rough idea of the timetable, right? So the next milestone, obviously, is the unitholder meeting that potentially around April, May. We are working hard on it. We're working on the circular, obviously, circular has to be out. So there's some road map to remember. Upon -- if we are -- if unitholder support both of us to be together as a merged entity, then we expect the deal to be completed by -- before end of June, hopefully. So there's some milestone date. I think more details will be announced in due course. Okay. So we complete our presentation and we're happy to take some questions. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [7] -------------------------------------------------------------------------------- Take some questions from the floor. -------------------------------------------------------------------------------- Mei Peng Ho, CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited [8] -------------------------------------------------------------------------------- So thank you, Tony and Kevin, for the clear and succinct presentation. We hope that all of you are excited and look forward to CapitaLand Integrated Commercial Trust just as we are. Now we are going to the next segment, which is the question and answer session. Before we start, I would like to invite our panelists to come on stage. We will have Mr. Tony Tan, CEO; and Ms. Cindy Sze, CFO from CMT; and we will also have Mr. Kevin Chee, CEO; and Ms. Anne Chua, CFO from CCT. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Mun Wah Lo, CapitaLand Mall Trust - VP of IR - CapitaLand Mall Trust Management Limited [1] -------------------------------------------------------------------------------- If you have any questions, please raise your hand so that my colleagues can hand you a microphone. Please state your name and company before you ask the question. For those watching the webcast and would like to ask questions via the webcast, please click on the post question tab and submit your questions. Now who's ready to ask the first question? Yes, Mervin? -------------------------------------------------------------------------------- Mervin Song, JP Morgan Chase & Co, Research Division - Head of Singapore Property [2] -------------------------------------------------------------------------------- Mervin from JPMorgan. Congrats, Tony and Kevin, on the transaction. Looks like an exciting future ahead. I guess you can -- through that headroom as well as the development headroom, you clearly can accelerate your growth options. Maybe, Tony, I think you touched on maybe some AIs or redevelopment potential in your portfolio. Which assets do you think you can -- is easier to kickstart maybe next year post the merger? In terms of overseas expansion, in terms of opportunities where you think the greatest opportunity reside? Is that more retail or office? And I guess, Kevin, back to operations, maybe some commentary on what's the tenant behavior in terms of office? Are there people too cautious or looking to expand post rebound in global PMIs. -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [3] -------------------------------------------------------------------------------- So just to address the first question is on what are the potential opportunity within the portfolio. They're plentiful, right? We can't name any. Obviously, they require -- I think I've briefed some of investors and this before. It's a constant dialogue. I think we have dialogue with the authority. Certainly, there's a clear indication to steer towards more a mixed-use development than a stand-alone single asset use. So I think we -- if you look at our portfolio of 15 shopping malls, [some there], obviously, a different stage of age. They are primed for rejuvenation. So the scale and size all depends on the final outcome that we can engage authority. But certainly, the authority wish for us to come up with something interesting. So I think we touched upon the -- what the merged entity can do together. Obviously, there could be a component of the office element, maybe plus other things. And each location will be quite different because each location are driven by different dynamics. So we have to assess the best use of each location and we take it from there, right? So I cannot pinpoint, but I think there are lot of opportunity out there. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [4] -------------------------------------------------------------------------------- So moving to your second question, again, overseas. First of all, to highlight that for the new entity, CICT, we will focus on retail, office and integrated developments. No change as far as the office strategy is concerned. We are already in Germany with 2 assets in Frankfurt. We like the market. We think there's a tremendous potential for that market, and we'll continue to look for new office assets and new opportunities to invest in the other cities of Germany. We have shared also right, that we would evaluate whether the other markets look at. But at this point in time, the focus is there. I think Tony has also communicated that from a CMT platform, they would -- they are evaluating opportunity -- the possibility of investing in also developed markets, right? So I think that strategy, that line of direction does not change. So that will continue while at the same time from the home base, we look at potential more exciting, larger developments like integrated commercial assets. -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [5] -------------------------------------------------------------------------------- So to add to what Kevin mentioned about the overseas. Obviously now with the merged entity, we will cast an eye on overseas opportunity very differently, right? Essentially, we have optionality in office, retail or even mixed use. So if these deals, we can -- with the blessing of our unitholder, we can push it through the finishing line. Certainly, we sit down together and evaluate our options. -------------------------------------------------------------------------------- Mun Wah Lo, CapitaLand Mall Trust - VP of IR - CapitaLand Mall Trust Management Limited [6] -------------------------------------------------------------------------------- Okay. Yes? -------------------------------------------------------------------------------- Donald Chua, BofA Merrill Lynch, Research Division - Head of ASEAN Real Estate Research and Director [7] -------------------------------------------------------------------------------- This is Donald from Bank of America. Couple of questions. First is so I'd like to ask what -- when did this conversation on the merger really started? And what was really the trigger? Because my question really evolve with -- surrounds whether bigger is really better in your analysis in doing this merger. Because you see within APAC as well big REITs doesn't necessarily mean to trade at a premium, while smaller REITs actually can trade at a premium. So how confident you are on that in the enhanced entity to have a much better cost of capital versus your competitors, which is a bigger pool now? That's the first question. The second question is on the redevelopment. As a large entity, you have a bigger firepower to do mixed-use redevelopments. How will this conflict with CapitaLand if CapitaLand is also looking for a large development to do? Will it be under CapitaLand now, or will it be under the merged entity? How do you solve this? That's the second question. The third question, I'll just get it out of the way. I guess people ask is how would be the management allocation like post merger, especially not only just on that on waiting to embark on overseas acquisitions as you grow more, how do you allocate management on debt financing? -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [8] -------------------------------------------------------------------------------- Okay. Maybe we start the answers in reverse order. It's easier. So the question on management allocation and all. Donald, clearly, it's a good question. Leadership and management is critical to any business to grow. And you can be rest assured that this is one of our priorities. But really, at this point in time, we do know the strong complementarity between CMT and CCT. And clearly, what we want to do is leverage off the expertise on both sides. And you can expect management from both teams to be working closely going forward, right? But I can't -- we can't go into specifics now. Really, the focus is about getting this merger completed, right? And in due course, the question on management, how exactly the structure is going to be look like and all that will be addressed, right, once the transaction is approved. Okay? -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [9] -------------------------------------------------------------------------------- So I can take the other questions. You talked about compensation. We talk a lot together. I mean we are a joint-venture partner. To me, it's the natural progression. You do know that retail market is noisy -- Singapore, noisy market. To do a third-party acquisition, challenging. So we -- where should we find growth? I have a natural partner next to me. So to me, this is a very natural progression. So it doesn't involve who talk to who first. We are talking to each other all the time. Raffles City, we work so closely together. Where Funan, we also see his view about the market, the office market in that locality. And we form our way forward. So there's already a lot of collaboration. So I think it's an ongoing [dialogue] even before this has been proposed. The question about conflict with CR, I don't think there'll be a conflict. I think we -- CapitaLand and, obviously with the combined REIT or even on our own, I think we are -- we actually offer a different value proposition to a different investor, depends on what their risk appetite. CapitaLand obviously has a wider scope, the emerging market. We are very, very focused on developed markets. And we [are REIT], right? So at the end of the day, I think investors will choose where they want to invest based on their risk appetite. So I don't think there's a conflict in that sense. Now obviously, there are also potential for even the combined REIT to partner CapitaLand for even large-scale, superlarge scale kind of opportunity. CMT has already done that before. We have a joint venture with CapitaLand and Westgate, as you know, and eventually, obviously we bought out the remaining stake. So it's nothing new. So it doesn't [procure us from] even joint venture. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [10] -------------------------------------------------------------------------------- And in the case of CCT, we now have a joint venture with CapitaLand and CapitaSpring. When we did that deal, why did we bring in joint venture partners? Because it made sense, not because we couldn't do it on our own. Because it made sense. So this is the approach when you make an investment, development, brownfield, greenfield or even a new investment opportunity. It's all about making sure the deal makes sense from a capital funding point of view and trying to work out the best result and best optimal outcome. If I may add, your question about cost of capital and potential of what it means. I think first of all, we need to understand that this is a merger of equals. We are bringing together 2 best-in-class platforms. So you shouldn't be looking at one or each entity separately. It's really about creating a brand new, more resilient, more robust platform that can do a lot more with all the right ingredients for success. And again, the ingredients that we talked about, the combined-domain expertise, the debt headroom that we have, the development limit -- headroom that we have. All these certainly adds to a lot more optionality and flexibility to make investments. So it's almost like a new -- jumping a new S-curve and pushing a new phase of growth. -------------------------------------------------------------------------------- Mun Wah Lo, CapitaLand Mall Trust - VP of IR - CapitaLand Mall Trust Management Limited [11] -------------------------------------------------------------------------------- Okay. I think (inaudible) has a question. -------------------------------------------------------------------------------- Unidentified Analyst, [12] -------------------------------------------------------------------------------- Congratulations, but I've got 3 questions on the merger. And a couple on each one of the REITs. First one, is on fees because both of you have different fee structures and CCT's fees are, as we all know, much lower than CMT's fees. And then there's your A2 rating because Tony, you've often said you want to keep your A2 rating. So CCT was downgraded a couple of years ago on one of your acquisitions yet. And then there is the equity raising part because CMT has a significant equity component in the price. You have an equity component in the price. I mean a price -- a cash component so there's equity raising. So those are the merger. Then individually, do you expect Lot One's occupancy to decline? I mean because you've started the AEI. So what's your expectation? And what will that do to the NPI contribution to the portfolio? And then of course, for CCT, what's the status of the HSBC building, given all the negative news we've had over WeWork? -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [13] -------------------------------------------------------------------------------- Yes. Okay. I'll take the last question first. -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [14] -------------------------------------------------------------------------------- Okay. Sure. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [15] -------------------------------------------------------------------------------- So good. I thank you for your questions. I'll start from the end. You've talked about Lot One. I won't go into specifics of each deal or each enhancement that you mentioned, Lot One and, I guess, HSBC. But I want to bring you back to what we spoke about, improving the resilience or having a stronger resilient platform, right? Reducing single asset concentration risk and earnings vulnerability. So we build a Lot One or HSBC, right? The composition or contribution from each of these assets to the enlarged entity it's a lot smaller than if it were in the respective own platforms, right? So we can still push ahead to do these very important deals and enhancements. And still, at the same time, we have a very, very stable distribution base to protect distributions to unitholders, while these AEIs go on. In the case of our HSBC building, just a quick one. We have signed a lease with WeWork. They are doing well in Singapore. We are happy for them to continue, and things are still going on as planned, right? No, no -- we are fully confident and fully behind the deal. -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [16] -------------------------------------------------------------------------------- Okay. So I'll address the question from the first one, the fee structure. Essentially, we are grandfathering the existing fee structure into the merged entity. That means existing assets come into the merged entity continue to enjoy the same fee structure. So I think that's all aligned [with interest]. We're constantly aware that the CCT's unitholder like that. Therefore, to ensure that there's alignment on the current fee structure in CCT will be morphed into it. Obviously, for new investment, going forth, you will follow that of CapitaMall Trust. That's what we do normally anyway, right? So that's the question on fee. On the A2 rating, I did mention, if -- as far as possible, we would like to defend it. I think we do see tremendous benefit of having a highly rated, in fact, the top rated profile in Singapore. But we have to measure that against the business opportunity. At the end of the day, it's a call, right? So everything else being equal, we will say that the business of opportunity would probably override. Because over time if we deliver our execution well, our number would show and our balance sheet improve. So even if we may, hypothetically, if we have to face any kind of a risk of a downgrade, I think over time, we will work hard to ensure we get it up again. Yes. So I think that address your questions. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [17] -------------------------------------------------------------------------------- The question that [Gula] had was on equity raising. It's not like I do an investment, and I need to go out to raise new equity, slight different. In this case, the scheme consideration comprises CMT issuing new units for every CCT unit on there. And in this case, it's 0.72 units. So CCT unitholders stay invested. -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [18] -------------------------------------------------------------------------------- Largely invested. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [19] -------------------------------------------------------------------------------- It's just in a different entity, but largely invested in CMT. And of course, the cash component. And the cash component would be funded through additional debt that CMT will be raising. -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [20] -------------------------------------------------------------------------------- So if you look at it from a structuring point of view, it's no different from how you will go out to do an acquisition, if you were to do it. The formal funding structure, you'll have a different component of equity and debt. So it's the same. Obviously, when we talk about this merger, it's really merging of equal. So we have factored that into consideration, we want both party, both unitholder to be able to enjoy the benefits from this merger. -------------------------------------------------------------------------------- Mun Wah Lo, CapitaLand Mall Trust - VP of IR - CapitaLand Mall Trust Management Limited [21] -------------------------------------------------------------------------------- Okay. Yes, David. -------------------------------------------------------------------------------- David Lum, Daiwa Securities Co. Ltd., Research Division - Regional Head of Banking and Finance [22] -------------------------------------------------------------------------------- David Lum from Daiwa, and happy New Year. The first question is the cost of capital of the merged entity, how confident are you that it should be lower than each of you as individually? And if it's much lower, do you think you could acquire assets or best-in-class assets in Singapore and in developed markets that you would not have acquired it if you were individually listed? So how confident are you? -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [23] -------------------------------------------------------------------------------- So David, we are confident of the new platform, the merged entity. We are confident about what it represents, combination of domain experience and expertise, a large capacity to do more and all this -- essentially all the right ingredients are there to grow and make accretive acquisitions. We can't tell -- I can't say exactly what it means in terms of the volume of liquidity or whether the counter will rerate, but certainly, all the right ingredients are there, right? Visibility, resilience, growth, leadership in the market. So I guess I can only believe that if investors believe as we believe in the merged entity, there is certainly a potential for our cost of equity to come down. -------------------------------------------------------------------------------- David Lum, Daiwa Securities Co. Ltd., Research Division - Regional Head of Banking and Finance [24] -------------------------------------------------------------------------------- And your A2 rating, is that the highest rating a REIT can achieve? Or is there a case to even deserve a higher rating after the merger? -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [25] -------------------------------------------------------------------------------- I think in the [actuary] space, yes, we are the highest rated. Whether they can go even higher is -- we think A2, A1 is quite a long -- it's a tall order. But we're happy A2. I think A2 is very credible. If you look at the top REITs around the world, the most highly rated REITs are also in the A2 space, between A2 to A3. Yes. -------------------------------------------------------------------------------- David Lum, Daiwa Securities Co. Ltd., Research Division - Regional Head of Banking and Finance [26] -------------------------------------------------------------------------------- Okay. And my last question, has there been any serious consideration of moving to an internally managed REIT because now that you're bigger, you have more scale. Shouldn't that lead to more cost savings for unitholders, if you did that, and more alignment of interest? -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [27] -------------------------------------------------------------------------------- In the case of CICT, and we have to begin with CCT and CMT. The structure that we have at excelling managed REIT works, not only for us, but I guess, for the Singapore S-REIT space. There's no real reason to change that at this point in time. I think we have tremendous alignment with our sponsor. We don't face the constraints or perceived constraints that externally managed REIT or people believe that externally-managed REIT has, right? So everything has not -- on this issue, this has not been an issue for us. So we don't think that -- we don't believe that this is something that we will consider in near-term or the future. -------------------------------------------------------------------------------- Mun Wah Lo, CapitaLand Mall Trust - VP of IR - CapitaLand Mall Trust Management Limited [28] -------------------------------------------------------------------------------- Okay. Yes, Brandon. -------------------------------------------------------------------------------- Brandon I. Lee, Citigroup Inc, Research Division - VP & Analyst [29] -------------------------------------------------------------------------------- This is Brandon from Citi. Just a couple of questions I made for Tony. I guess you've been, you're sort of guiding the market that you've been looking at like Australia as well as other developed markets. What actually propelled you to make this decision to pay, like, 1.1x book and 4.2% yield for an office REIT, where the cycle is near, instead of looking at something else listed in other developed markets? -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [30] -------------------------------------------------------------------------------- Yes. I'll take the question, please. So when we explore overseas, I did mention Australia is an interesting market. Obviously, I'm wearing our hat of retail space, right? But now it's a different ball game. Now we can look at something wider than just pure retail. We have opportunity to look at -- even office depend on market cycle. So one of the challenges, obviously, of going overseas, retail market, in some of the developed markets, are not easy, that's for sure. But that's the cycle now. The cycle may change over time. So it makes a lot of sense for us to refocus back to the fundamental. Our fundamental is to create this platform ready in time when the cycle change. And we have that balance sheet to do in a large scale other than to be on our own. So the question would be very different once we merged. What are you going to look at? Previously, we're looking at retail. Today, I think, opens up a lot more opportunity. I'm sure a lot of people knocking on our door, looking at -- perhaps even partnership opportunity, participating in large-scale high offer, perhaps a development where we may participate in 1 component of it, maybe, right? What I'm saying is that this final form obviously keep opens up more optionality for both CCT and CMT on a combined basis. Yes. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [31] -------------------------------------------------------------------------------- Yes. I'll add-on further Brandon. It's -- your question is basically status quo versus transformational strategic, right? Clearly, transformational strategic makes more sense for unitholders because it drives future growth, right? And we should be able to do it better and better and faster. -------------------------------------------------------------------------------- Brandon I. Lee, Citigroup Inc, Research Division - VP & Analyst [32] -------------------------------------------------------------------------------- Yes, just a follow-up. So on the post-merger gearing. It seems a bit high at 38-plus percent. Is there a consideration to sort of guide a higher gearing post the merger? -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [33] -------------------------------------------------------------------------------- I can take that. So we'll continue to, as prudent as disciplined in our capital management. This obviously is a transaction -- well, we want -- it's a merger but then it's transacted -- its fee structure is like a transaction with a acquirer and acquiree. So obviously, there will be some [tech] in the element. So I think that set the stage from day one. The deal opens at, I think we mentioned that deal at [2% or 3%] as the day one given. But going forward, we will be very disciplined. Look at how we will assess opportunity appropriately. How we want to fund any kind of third-party acquisition, for example, excellent acquisition. But we also can relook at within our portfolio and what we want to internally. There are a lot of things we can do once this is completed, yes. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [34] -------------------------------------------------------------------------------- If I may add, Brandon, would we even on our own respective platforms use our gearing unnecessarily? Answer's no, right? We've always been very prudent in dealing, and we'll only unleash our firepower if the deal makes sense, right? If you look back for CCT, when we acquired Asia Square Tower 2. It made sense. It was a strategic deal, it made sense and we are willing to bring our gearing up for that deal, but not just any deal. And in this case, I go back to the point about it being transformational, being strategic, it makes sense, right? And don't forget, as upon merger, as we create more value, right, our balance sheet becomes bigger, and that would also help to drive our gearing downwards. Okay? -------------------------------------------------------------------------------- Mei Peng Ho, CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited [35] -------------------------------------------------------------------------------- Can we at this point, before we have any more questions from the floor, there are some related asset class questions from the webcast. So I think there are 3 related ones. One is asking whether we were looking at integrated commercial development in future and Raffles City assets in China are designed as such. Would these China assets fit within the combined group in the future? Okay, that's question one. And the other question is about whether we would expand into other asset-type like logistics, because that's also a possibility that's raised, and commercial assets? And the third part is asking about, if we're looking at integrated development, what is the priority? Is it a sponsor-led development and subsequent sell down to the REIT? Or is it the third-party acquisition of integrated development? Or we are looking at self redevelopment within the REIT? So it's asking about where would the priority be for the merged entity. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [36] -------------------------------------------------------------------------------- I'll take the last question. Easiest, fresh and top of mind. Integrated, where will our priority be? Right now CICT would have a very balanced portfolio of office, retail and integrated developments. We will continue to look for opportunities across office, retail and integrated developments. It doesn't stop us from -- we are not just focusing on one particular area. So a lot depends on the opportunities that present themselves, right? But we expect that with our mandate and a larger platform, there will be a lot more opportunities presenting themselves, and that gives us optionality. So when that happens, then it's for us to assess which deal makes the most sense, yes? So the question is, will it be a sponsor-led, third party or within? My answer is to that is all of the above, right? Because as they present themselves, we look at it, we see -- does this one make sense or does the next one makes sense? And then we allocate capital accordingly. Okay? -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [37] -------------------------------------------------------------------------------- So as about Raffles City China portfolio, I think, today, I think we've been very clear. We want to stay focused on developed market. So immediate priority, the merged entity is going to be a developed market play. And there's a lot of things to do. I'm talking about, even Singapore, and even some developed market out there, I think there will be a lot of things for us to be busy with, yes? So I hope that answered the questions. There was a question about logistics. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [38] -------------------------------------------------------------------------------- Other asset types. -------------------------------------------------------------------------------- Mei Peng Ho, CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited [39] -------------------------------------------------------------------------------- A lot of possibilities, logistic, commercial, which kind of geography? -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [40] -------------------------------------------------------------------------------- So the way we look at this, which is the best use for that location, right? I mean we own, for example, within CMT, you own IMM, which is -- yes, we have retail, but we also have a warehouse. But that fits the business there, right? We will continue to look for such opportunity. Or if it possess -- if there's opportunity out there, certainly, we will consider whether this is the best form. So I don't think we are on the way out. But if you look at it, at the end of the day, both of us combined, largely is going to still be office and retail. I think that will not shift the equation for a long time, right? -------------------------------------------------------------------------------- Mei Peng Ho, CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited [41] -------------------------------------------------------------------------------- Okay. Then I think Jason has a question here. -------------------------------------------------------------------------------- Jason Yeo, Goldman Sachs Group Inc., Research Division - Equity Analyst [42] -------------------------------------------------------------------------------- It's Jason from Goldman. I've got one question on your higher debt headroom as well as development headroom. Does that mean you're more willing to take on development risk? So either greenfield projects or even acquiring all the assets [to tack on] and rebuild? -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [43] -------------------------------------------------------------------------------- So higher debt headroom, higher development headroom. I go back to the point about optionality and flexibility, right? Just -- it gives us the ability to do it. It doesn't mean that we will definitely deploy it. The deploy of -- how we deploy our capacity depends on the opportunity. So if it's the right opportunity to invest in, we will certainly look at it. In case of, say, debt headroom, both CMT and CCT have said that we are comfortable to stay within -- below 40%, even though the regulatory limit today is 45%, right? But if the right opportunity comes about. And we may have to maybe finish closer to the 40% for a short period of time because the deal makes sense, we would look at it, right? But if the deal makes sense, it would then result to virtuous benefits, which would then eventually lead to our gearing coming down again because you can create value, you can value add, you can achieve higher valuations, which then, in turn, lead to lower valuation. But ultimately, the bottom line is, it makes sense to the REIT and makes sense to unitholders. -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [44] -------------------------------------------------------------------------------- At the end of the day, our assets got to deliver. So with or without the merger, we are pushing, we are working at asset hard, so they will create value at the asset level. So naturally, that will help to cushion your gearing impact because the valuation naturally will catch up once you drive value in your individual property. Then Kevin obviously touched upon whether they do add something extra that we have to measure the risk-reward, we look at the -- what kind of time line, we look at how we're going to fill the gap. So many multiple consideration that has to be taken into consideration. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [45] -------------------------------------------------------------------------------- But this capacity gives us added competitiveness here, right? That's very important. So if you put ourselves against our peers, like-for-like, we can probably do it faster, better, quicker. -------------------------------------------------------------------------------- Mei Peng Ho, CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited [46] -------------------------------------------------------------------------------- Okay. I think we have a question. Terence first, then we go to Xuan, yes. -------------------------------------------------------------------------------- M. Khi, JP Morgan Chase & Co, Research Division - Analyst [47] -------------------------------------------------------------------------------- This is Terence from JPMorgan. Congrats, Tony and Kevin. I just wanted to ask with the much larger combined entity, would you consider finally acquiring ION Orchard from the sponsor? And also what about potential assets in Japan? -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [48] -------------------------------------------------------------------------------- I like ION. Let's put it this way. Yes. I think it's definitely very a -- is asset that represent Orchard Road. So if you want to be -- if you want to represent Orchard Road, I think ION is the asset to own. So I think that's quite clear. Japan, obviously we will look at it. I mean developed market, we mentioned, it obviously cover Japan. But you have to look at the very specific, what kind of assets we're looking at, whether it's office or retail or combination. But it's a decent market that we want to do well, yes. -------------------------------------------------------------------------------- Mei Peng Ho, CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited [49] -------------------------------------------------------------------------------- Okay. I think Xuan? -------------------------------------------------------------------------------- Xuan Tan, CLSA Limited, Research Division - Research Analyst [50] -------------------------------------------------------------------------------- This is Tan Xuan from CLSA. I have two question. Firstly, is... -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [51] -------------------------------------------------------------------------------- Sorry, I can't quite hear. -------------------------------------------------------------------------------- Mei Peng Ho, CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited [52] -------------------------------------------------------------------------------- Xuan, can you speak up a bit? -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [53] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Xuan Tan, CLSA Limited, Research Division - Research Analyst [54] -------------------------------------------------------------------------------- Can you hear me? -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [55] -------------------------------------------------------------------------------- No, a bit softer. Yes. Perhaps. -------------------------------------------------------------------------------- Xuan Tan, CLSA Limited, Research Division - Research Analyst [56] -------------------------------------------------------------------------------- This is Tan Xuan from CLSA. My first question is on cost synergy. Do you think there'll be any cost synergy from the merger? And also is there any synergies imputed in the pro forma calculation? And secondly, is there also a 1% acquisition fee for this transaction as well? -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [57] -------------------------------------------------------------------------------- Yes. Well, there could potentially could be some cost synergy by coming together, perhaps. But importantly, retail and office as an asset class, I mean they are unique in their own way. So they will be managed quite differently, in a sense. Of course, coming together as an integrated project like Raffles City, that is another new dimension. So we'll certainly, as what we normally do, a responsible manager would try to strive to have as much synergy as possible and to be more -- as efficient as possible with or without the merger. Yes. So I think that's what we can -- you can rest assure. On the second question of acquisition -- acquisition fee, I think we did apply a 50% reduction. I think because you want the deal, I think at the end of the day, it's really a merger. We want this merger to happen. So we look at different parameter. I think at the end of the day, it was a call to apply a 50% reduction. I think it's also in line with some of the merger that's happened out there. Yes. -------------------------------------------------------------------------------- Mei Peng Ho, CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited [58] -------------------------------------------------------------------------------- Okay. Yes, Vijay. -------------------------------------------------------------------------------- Vijay Natarajan, RHB Research Institute Sdn Bhd - Analyst [59] -------------------------------------------------------------------------------- Just 2 questions. Firstly, I think on the key reasons for the deal, one of the reason you mentioned during your presentation is that, globally, it has been challenging retail market and retail market is on a downtrend. How much of this played a role in terms of this deal coming forward? And going forward, will it be more of office acquisitions, which we will expect for the combined trust? -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [60] -------------------------------------------------------------------------------- So on acquisitions, right, I think what we see in the retail market is apparent for all to see, right, that the disruption from retail or from online and so on and so forth. But I think all we need to look at is Singapore. You need to bring back -- come back to Singapore. Singapore is a very different market. Tony will say -- he's a preeminent expert on this, right? Singapore is a very different market. CMT is a different platform. It's by far the best-in-class retail. So for us, we are very happy to be having a partner who is the best of retail in Singapore. Yes. So clearly, I think in Singapore, we can look at integrated developments which combine office and retail. And the case of office assets, we will continue to look for assets overseas, as we're already doing. Suddenly in Singapore, if the opportunities arise and the numbers make sense, we would like to look at it, too. -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [61] -------------------------------------------------------------------------------- So you touched upon retail. Yes, I say it's not easy market. But the retail market is evolving. Really important to note that this is not a new phenomenon. Of course, e-commerce these days is the buzz word, online or hitting the mark. Every day headline is about online. But retail market has been evolving for the last 1, 2 decade. Decentralization, economic development, your infrastructure development, it all drives behavior of consumer, and we are direct. So we have to react accordingly, right? So today the buzzword against our new retail. What exactly is new retail? I mean everybody is trying to figure out. We have little bit our own formula to do it. You see Funan is crystallized a little bit of component of that new retail. You probably also notice is we have element of office, we have element of co-working space. So we will -- is co-locating in our shopping mall. And it's not unique to CMT. You look at some other assets is already happening, right? So it's about how you're going to evolve with it. And we have a very strong platform, our sponsor, CapitaLand, is probably the most progressive retail management player in Singapore. All constantly evolving, constantly investing, so we are confident. Yes, no doubt there are headwinds. But over time, I think we will find the right formula to tackle it, yes. -------------------------------------------------------------------------------- Vijay Natarajan, RHB Research Institute Sdn Bhd - Analyst [62] -------------------------------------------------------------------------------- And is there any index inclusion also which you are aiming out for the combined execution? -------------------------------------------------------------------------------- Mei Peng Ho, CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited [63] -------------------------------------------------------------------------------- Index inclusion. -------------------------------------------------------------------------------- Vijay Natarajan, RHB Research Institute Sdn Bhd - Analyst [64] -------------------------------------------------------------------------------- Is there any other index inclusions also which you are aiming at for the combined REIT as a factor or... -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [65] -------------------------------------------------------------------------------- As far as index inclusion, we are already in all the indices, right? We probably feature just higher in the indices, and bigger. -------------------------------------------------------------------------------- Mei Peng Ho, CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited [66] -------------------------------------------------------------------------------- Thank you, Vijay. I think Wai-Fai has a question. -------------------------------------------------------------------------------- Wai-Fai Kok, UBS Investment Bank, Research Division - Research Associate [67] -------------------------------------------------------------------------------- Wai-Fai from UBS. I have 3 questions. Firstly, can I just confirm that, you mention now, the fee structure will follow CCT and it would mean lower fee for capital and going forward and that you are taking 50% of fees and units now? That's my first question. Second question, are you looking to do anything to your stake in CRCT now that you are merged? And thirdly, just on results, can you comment on the negative rent reversion at Asia Square Tower 2? And with Allianz moving out, have you managed to find any prospect? -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [68] -------------------------------------------------------------------------------- Okay. On the fee bit, let me just clarify, right? For existing assets of CCT, the same fee structure applies. For existing assets of CMT, the same fee structure for CMT applies. Going forward, for new assets that the merged entity acquires, it will follow the CMT fee structure, right, which is comparable to market. CRCT, I'll leave that to you. -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [69] -------------------------------------------------------------------------------- So your question about CRCT, I mean at the end, please remember, we are looking at developed market today. The whole reason why we want to do it, I think we explained earlier. We want to be a clear leader in Singapore. This merger certainly propel us into clear #1, right? We are #3 in Asia Pac, in Asia Pacific region. So that brings up a lot more opportunity. Putting this together, we have so much things to do. Today's CRCT, on a merged basis combined, probably represent almost 1% of our exposure. So I think our attention is really focused about getting this through, yes. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [70] -------------------------------------------------------------------------------- So Wai-Fai, your question on Asia Square, right? Thank you for giving some attention to our results as well. So for Asia Square, I think your perception of negative reversion arises from our table where you compare the range previous quarter versus current quarter. We've note, in the past, shared that you can't exactly compare that way because it very much depends on the leases that are renewed in that particular quarter. And that's why we do not -- however, we do not show the number -- direct rent reversion number. And in this case of our Asia Square in fourth quarter, the leases were larger compared to previous quarter where the leases were smaller. So naturally, when you have a larger lease, the rents expected to achieve for a larger area, larger space is slightly lower than what you expect from a smaller space. And if you recall, I also shared that for full year 2019, one of the contributing factors to improvement was the performance of Asia Square, right? So I think what you saw may have been just a specific quarter. -------------------------------------------------------------------------------- Wai-Fai Kok, UBS Investment Bank, Research Division - Research Associate [71] -------------------------------------------------------------------------------- What about the space Allianz is vacating? -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [72] -------------------------------------------------------------------------------- For the space that Allianz is vacating, we are in talk with different prospects, right? And we -- in due course, we will be able to share more information about it. -------------------------------------------------------------------------------- Mei Peng Ho, CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited [73] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Wilson W. Ng, Morgan Stanley, Research Division - VP [74] -------------------------------------------------------------------------------- It's Wilson from Morgan Stanley. So just 2 questions. In terms of the rationale for the transaction. I think one of the listed reasons was to acquire integrated development capabilities and mandate. From that perspective, now you have retail and office. Would you say it will be ideal to add on the hospitality portion as well? Second question is, again, on the rationale for the transaction, leadership and scale was one of the reasons that was stated. Would it be fair to say that post-transaction moving forward, scaling up further would be one of the primary objectives of the REIT? -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [75] -------------------------------------------------------------------------------- So first question, I can touch. Maybe you want -- can touch the other one. I think obviously, we will not rule out hospitality. Again, the main point's that every prospect will be different. It depends on where you're located. So we always have to assess what's the best use for that location. So it may have hospitality. It may, yes. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [76] -------------------------------------------------------------------------------- So one fine example for that, Wilson, is our CapitaSpring project, right? We have a 635,000 square feet of NLA in our up and coming building, plus 299 service resident apartments. When we evaluated the options for that scheme, it made absolute sense because it serves a CBD market for people working CBD wanting a convenient and luxurious environment to live and then pop to work just next door. It makes sense. Does it make sense to put retail there? Maybe not, given where -- how the CBD is not exactly the most bustling area for retail versus places like Orchard Road or some of the suburban centers. So going back to that point, very much identifying the best scheme for the best -- for a particular location. And that's what we'll have to evaluate. On the second point about leadership and scale, again, it's not scale for scale's sake. We are looking at achieving very, very measured growth that makes sense, deploying capital when it makes sense. Not deploying capital just because we want to bulk up. And I think that's a principle that both CCT and CMT have lived by from inception, and it will continue to be the principle that we live by going forward. -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [77] -------------------------------------------------------------------------------- So the enlarge base obviously give you a lot -- again, (inaudible) risk of repeating myself over, actually give us more option now. We can take a larger-sized transaction if there are opportunity out there, yes. -------------------------------------------------------------------------------- Mei Peng Ho, CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited [78] -------------------------------------------------------------------------------- Are there any more questions? Yes, gentleman behind. -------------------------------------------------------------------------------- Unidentified Analyst, [79] -------------------------------------------------------------------------------- Simon from DBS. I just had a couple of questions, more on the operational aspect. Can I ask, in terms of the merger decision, how much of the consideration of a potential uplift in terms of the MAS leverage ratio was considered given that you mentioned that the development headroom was a consideration, that headroom is a consideration. So if the MAS leverage ratio is going to be raised, how would that change and interplay with your merger decision? That's the first one. Second one is more on the semiannual reporting. Do you -- if the merger is effective in June, do you still intend to make a quarterly report in June? Or will you skip that and kind of do one in September? I don't know when is the next one. And then the third question I had is I think the struggle that I have is that, on an immediate basis, I see the benefits for CapitaLand. But I just wanted to get your sense in terms of the benefits that you talked about, whether it's scale, additional capital for the combined group. In the next 12 months, which of those benefits do you see being most apparent for the group? -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [80] -------------------------------------------------------------------------------- So straightforward answer, MAS has nothing to do with it. That's not part of consideration at all. We really come to this proposed merger based on the merits. We think there's a strong case for us to build a platform that will -- all the benefits we mentioned earlier, to give us that additional optionality, the firepower, the market to explore. So I think that's lots of the consideration. On semiannual or quarterly, I think that's something that we have to deliberate. It's been just announced in January, early January. Certainly, this is something that we discuss with the Board how to going forward, subject to clarifying with the exchange or the rules behind semi-quarter distribution and half year distribution. So I think that's something that still under discussion, yes. We announce in due course. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [81] -------------------------------------------------------------------------------- And then in terms of immediate benefit, I mean we share in terms of accretion, right? That's the immediate, immediate benefit that we see. CCT -- CMT unitholders, 1.6% accretion. CCT unitholders, 6.5% accretion, right? Of course, there will be added benefits as we -- when we merge and we acquire new assets on the merge platform. And then those would also flow through in due course, accordingly. -------------------------------------------------------------------------------- Unidentified Analyst, [82] -------------------------------------------------------------------------------- Is it also right for us to assume that, for 2020, the talks about overseas acquisitions, that will be something like a 2021 kind of -- or do you see opportunities also happening in the second half of 2020? -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [83] -------------------------------------------------------------------------------- Even though this deal is happening and we are looking forward to concluding a merger, it does not stop our investment teams from continuing to be out there looking for opportunities and deals, right? So again, we can't talk about deals that may or may not -- may happen. We only talk about deals when and there'll be something announced. But believe you me, our teams are also still busy looking for opportunities out there. -------------------------------------------------------------------------------- Mei Peng Ho, CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited [84] -------------------------------------------------------------------------------- Okay. We do have a couple of questions on the webcast because I think we have different audience there. So I think one of the questions is asking about how do we consider the various -- the scheme consideration, how do we -- can we share a bit of like why it's not 100% cash basis or not. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [85] -------------------------------------------------------------------------------- Maybe I'll start off with the question. I think the starting point on this merger, right, is that we approach this as CMT, CCT coming in together as equals. So it's a merger of equals. So with that mindset in play, right, the decisions and on the basis for coming about with this same consideration, was very much to achieve a win-win outcome for both CMT and CCT unitholders. So as we shared, there is DPU accretion for both. And we also want to make sure that after the merge -- after the merger happens, the merged entity CICT has all the right ingredients and has the right foundation for success. So that's how we came about with the deal mechanics. -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [86] -------------------------------------------------------------------------------- So it's -- I mean from a pricing mechanism of this is market to market pricing. And obviously we take a reference to both the trading price of CCT and CMT into consideration. So it's really a market pricing mechanism. And then the component equity cash ratio, this where Kevin mentioned, how do we structure something that allow both party, both side of the unitholder, to really enjoy this, at least on the on-site accretion arising from this transaction. -------------------------------------------------------------------------------- Mei Peng Ho, CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited [87] -------------------------------------------------------------------------------- [My fourth time]. So Donald, you want to ask the last question? And then I'll have one more question from the webcast, yes. -------------------------------------------------------------------------------- Donald Chua, BofA Merrill Lynch, Research Division - Head of ASEAN Real Estate Research and Director [88] -------------------------------------------------------------------------------- Just -- sorry, Donald from Bank of America. Just very quick question. From now to the closure of the deal, can any of you make an acquisition in meanwhile? And if you make an acquisition and then financials change, what's going to happen? -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [89] -------------------------------------------------------------------------------- So it's provided for in the agreement that we do have the space to look at BAU, business as usual, up to a certain cap, obviously. Yes. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [90] -------------------------------------------------------------------------------- Yes. But really, there's no stopping. I mean of course, if a deal makes sense and we talk about it and discuss it, and both parties believe it's good for the merged entity, we would consider it. -------------------------------------------------------------------------------- Donald Chua, BofA Merrill Lynch, Research Division - Head of ASEAN Real Estate Research and Director [91] -------------------------------------------------------------------------------- (inaudible) -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [92] -------------------------------------------------------------------------------- We'll have to -- again, that has to be taken in consideration, what the impact is going to be, night -- right? But I think all I'm saying is it does not stop us from being out there looking for opportunities. -------------------------------------------------------------------------------- Mei Peng Ho, CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited [93] -------------------------------------------------------------------------------- Okay. The last question from the webcast I think is also something that everyone will be interested in. So who will be the new boss for CapitaLand Integrated Commercial Trust? -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [94] -------------------------------------------------------------------------------- We did answer that. But maybe just to repeat, I think at this moment our focus is really to make sure you cross over the finishing line. I think that's the #1 priority. Both teams, in fact, both teams of the commercial teams and the retail teams are already working alongside for this deal and even as a joint venture partner. So I think you see a lot of complementary effect between the 2 teams. But I think importantly, we need to reach the finishing line. I think that's really the crux of it. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [95] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Mei Peng Ho, CapitaLand Commercial Trust - Head of IR - CapitaLand Commercial Trust Management Limited [96] -------------------------------------------------------------------------------- Yes. I think we want to thank Kevin, Tony for taking so much time to answer, address all your questions. And also that we know we have not addressed all the questions. I think we see as some questions on the webcast. But we will reach out to you to address all your questions. So given the time, we will have to end today's session. So thank you for taking time to join us this morning. And lastly, we wish everyone a happy Lunar New Year. -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [97] -------------------------------------------------------------------------------- Yes. Happy Lunar New Year. -------------------------------------------------------------------------------- Tien Jin Chee, CapitaLand Commercial Trust - CEO & Executive Non-Independent Director of Capitaland Commercial Trust Mgmt Ltd [98] -------------------------------------------------------------------------------- (foreign language) -------------------------------------------------------------------------------- Tee Hieong Tan, CapitaLand Mall Trust - CEO & Executive Non-Independent Director of Capitaland Mall Trust Management Limited [99] -------------------------------------------------------------------------------- Yes, (foreign language). Thanks for coming today.