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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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Hi, everyone. Thank you for joining us today. Welcome to CL CapitaLand China Trust 1Q 2023 Business Updates Call. I'm Nicole, IR for CLCT. So together with me is Tze Wooi, CEO; Joanne, CFO; and You Hong, Head of IPM. So in the next hour, we'll be having a short presentation before proceeding to our Q&A section. So we're taking questions after the meeting. [Operator Instructions] So I'll pass the time on now to Tze Wooi. Tze Wooi, please?
Yes. Thanks, Nicole, and welcome, everyone, to our 1Q business update. Let me just quickly take you through our slides, and then we can move into the Q&A. I think for most of you who have followed us, you know that we are now more known as a diversified REIT. So we now the portfolio comprises 11 retail malls, 5 business parks and 4 logistics. City location are primarily oriented towards the Tier 1 and the high provincial capital cities. So we ended the year in terms of our quarter -- sorry, our asset base of SGD 5.2 billion, market cap SGD 1.9 billion. And across our asset classes, the occupancies are trending above 90%. If you recall how 2022 was being trade through and shaped, you realize that the second half, especially in the fourth quarter of 2022 being a very difficult environment for our business. So as we close the chapter on our 1 quarter 2023, I would say that we are moving towards an improving business environment. Looking at our retail, you can see the leading indicators from the traffic side, the sales and also the retail occupancy, and these are all improving quarterly and year-on-year. And looking at 1 quarter 2023, I would say that January and February was a little bit still slow. But as we moved into March, we see a little bit more leasing, and business activity has been converted. So we have actually done about 30% of our retails NLA in terms of renewal. And over at our new economy side, again, if you look at what we have been focusing to do is really to look at the post COVID kind of environment, where are the new demand and where the business activities are shaping up. And as we look at capturing some of these how we look at balancing some of these tenant quality against our occupancy target and also our asking rental. And quite similar to the retail, I think the business environment is improving generally. People are more traveling. People are looking at space commitment, people are making business decisions. So about 20% of our NLA is done in the first quarter. If you look at where we land in 1 quarter 2023 versus a year ago, some of the moving parts in the portfolio, you will see that [ Qibao ], we are running off its business. So we see a little bit of that dilution effect. Other than that, there are several of our assets that I will take you through later on in terms of the program that we are doing in terms of AEI. So there will be a little bit of a downtime as we take the area to do all these adjustments with the upside only flowing through in the second half of this year. And also, if you look at where we landed the year I think the occupancy in the fourth quarter was lower, but we managed to sign in more in March this year, but some of these space handovers will take a bit of time for the revenue to come in. On the operations side, I think we just wanted to highlight that in the first quarter, the Grand Canyon has already completed the AEI for the mini anchor space. Similarly for Yuhuating that we have mentioned to you across 2022, these are also progressively completing towards 1 quarter of 2023, and its positive uplift will start to flow in from the second quarter onwards. And what we are embarking on now next is actually to look at our 2 major, I would say, the anchor space recovery, and also to convert those space into high yielding. So one is that Grand Canyon and the basement where we take back space. and the other is at a partial tieback of the AEON supermarket at Rock Square and also some of the F&Bs of at Level 3. So these are something that we are doing, and the effects will come in, in the third quarter. On the capital management side, I just want to highlight that we have completed in advance all the refinancing coming due in 2023, take opportunity to extend the maturity further out to 2027 to 2029, thereby lengthening it. And we also take opportunity to increase the percentage of the sustainability loan proportion. All in, I think if you look at our ICR, it's maintained at a healthy level of 3.6x, well above the regulatory as well as the bank covenant. And we continue to be prudent by hedging our loan books at 75% on a fixed portion. If you look at the debt profile, I think, currently, we are about this balance of onshore and offshore. I think we are constantly reviewing how we can, I would say, increase the proportion of the onshore debt because I think the onshore debt are now getting a little bit more attractive in terms of the all-in cost. So this is something that we are working on as we look at how to rebalance some of this onshore and offshore gearing profile. From a debt maturity standpoint, I mentioned earlier, if you look back 3 months ago, there was a tower coming in at 2023. This has since been refinanced up to 2027 to 2029. So it's actually we're all done for the year. And moving quickly to our portfolio. I think the key takeaways I want to share here is if you look at how our portfolio is shaped today, the continuous effort of our AEI in the past few years have not strengthened the tenant exposure. We are no longer having any exposure to the department store, so that's fully exited. If you look at the fashion exposure, that has also incrementally been brought down to a level of 13% today. On the other hand, we have been increasing exposure to the more dynamic F&Bs, the services, the leisure entertainment, the sports, the health and the leisure type of brand [indiscernible] we are seeing a little bit more ability to capture the consumer spending. So I think some of these efforts are playing out. On the other hand, we are continuously looking at opportunity [ when the lease expiry profile reaches ] or we actively engage some of these anchor supermarkets to take back space. So you can see the supermarket anchor also progressively coming down that will help us to release more area to inject new and more interesting offerings. On the new economy side, I think that's where we are in terms of positioning the park and capturing the tenants. I think so far, you see us increasing to attract people into the park. There are other sectors like semiconductors, the biomedical, et cetera. Let me just move on quickly to the retail side of things. I think if you look at where traffic and tenant sales are, I would say, traffic on year-on-year is improved. I think this one really, you can see that uptick mostly across most of our malls. And if you look at tenant sales, it's advancing slightly faster. If you look back at where we are, some of the malls in the first quarter are already reaching the pre-COVID levels with some after the AEI is even doing better than pre-COVID. So I think largely, we are moving into an environment that you see a recovery. And I think let us look at this recovery over the next few months, but trajectory-wise, I think we are in a very healthy level. And I mentioned earlier, these are the few trade categories that we see are able to capture some of the spend F&B, as we have mentioned. As we bring in new concepts, that are able to connect with the shoppers of today. The sales are doing well, beauty and health care services and especially for the cinema, leisure entertainment, I think they have been very difficult times over the last 1, 2 years because of stringent measures. Since the uplifting, I think, this year, they're able to capture some of this China New Year flowback with new office movies being released. Overall, if you look at our -- in terms of our occupancy, I would say that the uptick, it's clear that, sequentially, we are moving from a quarter, and we're able to convert some of these opportunities in the first quarter of 2023. And moving on to the new economy side. I would say that among the few -- Hangzhou, as I mentioned to you, I think the last update that this is a part that is more having the e-commerce, small enterprises, and we do see some of these enterprises business model being disrupted somewhat ever since the Alibaba ecosystem and then all these COVID restrictions. And a lot of these small enterprises are set up, start-ups that were helping the whole ecosystem move from the customer-facing front. Some of these have slowed. And I think during the fourth quarter, especially last year, there are some renewals that are not done in time. So you see a little bit of that carry on into Jan and Feb. But as much, you see things improving. So I think let's give that backfill a little bit of time and also to look at how we want to capture some of these leasing strategies as we go along in a post-COVID environment. I think I mentioned earlier, I think we are constantly looking at how to diversify and also objectively looking at how to be a bit more tactical at times, balancing the few objectives, the occupancy, the asking rent and also the tenant we want to bring in. And largely, if you look at how we have been collaborating, I think this is an area that we'll continue to outreach and talk to the government in terms of in the post-COVID situation, which tenants sectors are more in demand that the government would like to attract to the district, and it's something that we're working on. Overall, I think we do sign up a little bit more. If you look at where things were in the fourth quarter and now moving into 1 quarter. And I think we would like to see this momentum improving as we look forward into a more, will say, improved sentiment. And largely, if you look at where the demands are coming from, I think these are again quite well in line with the top positioning and also where the sectors are growing. I think if you look at the professional services, infocom and the biomedical, these are areas that we continuously want to build the tenant community, and it's something that we spend our time to focus. Logistics, I think, is fairly stable, I would say, in terms of its occupancy. Not much leases are up for renewal in this quarter. And I think if you have been looking at how we have been looking to shape our portfolio, I think the focus remains the same. Now that China has opened up and I think there's a lot of pro-growth policies that are supporting. I think the [ managing policies ] also very accommodative. You see the government focusing a lot on the economic development front, trying to create jobs, employment. All these positive feel-good factor, I think we need that to carry on for a while to see the implementation down. And as the business confidence and consumer sentiments improve, I think it will shape what we want to do in the second half much better.
So we'll continue to focus on the 3 tenants of creating value. We have seen some of these ideas extracting through AEIs, and we'll continuously look at opportunity to monetize some of our assets to recycle that will help us to further our growth in the strategic alignment of where we want to shape the portfolio towards this on the longer term. Now short term, I think we will focus to strengthen retail holdings, bring in a little bit more of the new economy assets that can give us that quality in terms of their strength in the revenue sectors. And as we become bigger, cost of capital becomes better, then we'll look at bringing on board the more bigger commercial integrated. And these are some of the first quarter's results, I want to just highlight to you. I think you can see where we are coming from. We are reducing exposure of space towards anchors and bring on board more shops, more retail offerings that can better capture some of the [ catchment ] spending of today.
So some on this upside, as we speak, we are progressively being completed towards the first quarter. And starting from April onwards, some of this upside will flow in. I mentioned it earlier. This is the Grand Canyon, same thing. Upside will start to come in from the second quarter of this year. And this is a slide I wanted to share with you that the next major AEI that we'll be embarking on is actually the basement of Grand Canyon. So we'll be taking back the whole basement, which is currently leased to anchor supermarket. We are going to reduce the format into something that's I would say, more interesting, they could connect with the younger shoppers of today. I think this anchor has been around for a long time. I think we need a refresh. We've chosen something to partner us. And I think the -- alongside that, there will be more area that we can use to inject a little bit more activities towards the basement. I think we are progressing the work, and you can see that progressive completion towards the third quarter and towards the end of this year. Similarly, at Rock Square, we have already started the take back of some of the areas from the AEON space. Again, we're going to be able -- this is a good area at basement to where the escalator will come out from the MRT. So this is going to be a huge flow of traffic. And I think we are going to configure into something that's smaller and able to have those capture the fast moving. And all in, I think we are also expecting this works to complete around the third quarter. And similarly at Level 3. This is a good chance for us to take back some of these bigger F&Bs that are reaching its expiry. You know that we have done quite a fair bit to reach over Rock Square since our first acquisition in 2018. And these are the last batch of the big format F&Bs that are coming up. So it gives us that good opportunity to resize and to bring in a little bit more things to capture spending. So look forward to this coming in, in the third quarter. I think there's some of the examples that we are doing for this year. I won't talk too much of it. And I think I'll just leave with you some of this that I've already mentioned, and we move into the Q&A.
Okay. Thank you, Tze Wooi. So let's now go into our Q&A section. Can I pass it to on to Terence Khi.
Congrats on a good set of numbers. Maybe I can first ask on the reversions. Could you share on the reversions for retail business parks and also logistics, if possible?
Yes. So reversions, I would say, for the 1 quarter, a large part of the reversion positive effect was through Yuhuatings' AEI, so that land us in about 3% for the first quarter. For the business parks, as I mentioned earlier, we are also trying to balance some of this asking rental with occupancy target. So on a net basis as a portfolio, we are reverting at about 1.5%. Logistics is a bit flat for this quarter because there are not too many expiries and renewals happening.
And -- for especially for the business park, I mean, you mentioned that you are looking at some of the smaller e-commerce tenants leaving. So how should we see occupancies trending? Have we seen the worst of it yet? Or when should we expect further recovery?
Yes. So if you look at where things were, I think 6 months ago, then rolling into December and rolling into March, I would say that the so-called dilution or the attrition of those smaller players have probably -- we have seen that big part of it happening. In terms of March, you do see activities picking up. So I would think that those attrition that we are seeing in the fourth quarter when things are coming through for expiries in Jan and Feb, the smaller players are still not picking up space. But as we move into March, I think, with the reopening, I think with the business activity improving.
On a net basis, we are signing a little bit more leases, as I mentioned earlier, there's a slide. I think 1 quarter is probably the trough. If you look at where things are, and I think in terms of the occupancy as we move towards June, September, we should see a progressive improvement that's in alignment with the whole business activity outlook that I spoke about earlier.
And a final question from me in terms of the debt financing costs, I see that it has gone up slightly from fourth quarter to this quarter. After post the refinancing, how much more should we expect in terms of higher costs? And do you have some sort of outlook in terms of what will be the cost for this year?
Yes. So if you look at how we ended the whole of 2022 at about 3%, it was a weighted average. And if you look at where we started the year, obviously, it was lower, right? They track sequentially. But where we -- end of the fourth quarter, the rates have already moved quite visibly and quite -- I mean, all of these are very clear. I mean, the base rates are really reached above 3%, and some of our refinancing in the second half of 2022 were repriced. So that sequentially move our average cost of debt to about 3.4% [ as you see ]. But if you look at the next slide, you can also see that essentially, we have already refinanced the [ tower of 2023 up ]. So this extension of maturity and their cost of debt. I think the majority have been built into this 3.48% already. So if you look at the amount of loan base that were still subject to the interest rate volatility, I would say, not a lot. So I mean barring how interest rate would move, I would say that the amount of refinancing has been already done is already inside our cost of debt, and the amount that's still subject to further will not be significant.
Okay. Maybe I'll give a more questions later.
Over to you, Geraldine.
So are you able to hear me?
Yes.
Okay. Maybe a couple of questions. The first one, a second question to Terence's first question. For the loan that was refinanced this quarter, SGD 200 million, Are you able to [ less now ] but what was the rate that was secured? And if it was onshore or offshore?
The SGD 200 million is offshore. Joanne, you want to share?
[indiscernible] hope that answers your question.
Okay. Clear. My second question will be on your business tax reversion. I think this quarter looks a bit more modest compared to the above 5% that you've been achieving for the past many quarters. So do you think that we are still in the growth space in terms of passing rents? And do you see it further -- how long you see the resupply going on for in the business tax space?
Yes. So I mean, if you look at when we first acquired the business parks, I think we have been guiding that we can revert in the mid-single-digit, right, about 5% to 6%? I think in the last few rather since acquisition, we have done slightly better in the sense that we were able to talk about the 6% level. But as you look at the trusting rental, they are coming up for renewal. We have to then look at each asset in specific, which are the ones that are coming up for renewable against what are the new tenants that we would like to attract in. So I think -- and also looking at where things were impacting some of these tenants due to the COVID-19 disruptions, people's business outlook may have moderated. Some are also reviewing their 1 business model in terms of space needs. So some of these are going through as we negotiate for leases. So I think what you see in this quarter is a reflection of that window of negotiation, and therefore, the rate reversion has moderated down. So I think this year is where I mentioned, for some of those, we have to keep looking at where to find the right balance. And I think in the Hangzhou area, that's where because of the tenancy, the occupancy that we want to bring in and also some of the new supply coming, I think in terms of asking rental, we have to moderate a little bit. I think in [ sozhou], I think it's a little more steady. I think so far, [ sozhou ] is less impacted, I think, because of the [ track ] positioning and also the kind of tenancy exposure we are already oriented towards the professional services, the infocom, the biomedical. I think these are the areas where there are less, I would say, rent sensitive, per se. So I think it will be quite asset specific, but largely, we should moderate down a little bit, if you want to balance the occupancy versus the tenant that we want to bring in.
Okay. Can I have David, please?
Yes. A few questions. The first one is that on a portfolio basis, revenue and NPI were down slightly year-on-year. With regard to the new economy assets, were there are any assets that also had a negative year-on-year performance?
In terms of the new economy, you mean?
Yes. Yes. Any business parks or logistics that saw a negative year-on-year performance in revenue or NPI?
Yes. So the main ones actually, the 2 Hangzhou that I mentioned, if you look at where we ended the year in the fourth quarter and how things were shaping into the first quarter 2023, we are actually working off a lower occupancy relative to the first quarter of 2022. So essentially, these are the 2 new economy assets that you see that slid down in terms of that year-on-year variance.
Okay. I also noticed that the [ wale ] of your business parks and logistics is now much shorter than the shopping malls, which are already pretty short. So I noticed that you have a lot of renewals for the logistics properties this year. And I assume you have some renewals for the business parks. But on a more normal situation, what should the [ wale ] Be for these segments? Surely, they should not be so short, right?
Yes. David, you rightly pointed out, I think for the logistics asset, if you recall, we acquired this from a third party only towards the end of 2021. So this is going to be the first lease cycle post acquisition that we are renewing. Obviously, the current [ wale ] is a legacy that we took over. As we look at the new lease structure, we are thinking of how to stagger them better than to have all of them bunching together. So that's definitely something that we would like to walk through the renewals this year. Most of the market, I would say, for -- unless it is very build-to-suit, unless it's a very clear single-purpose time, I would say the business part so far behave also around 2 to 3 years kind of [ wale ]. Obviously, if with the space, the anchors, they take up more, I think we can look at extending beyond 3. So these are some of the feedback that we are already well aware. So we'll work through with the property teams to look at selectively extending and staggering some of this wale for different assets. So this is something that we're looking into.
And finally, for the logistics park leases, do you have any guidance on what type of rental reversions you expect for your first round?
I think logistics have to go again asset by asset. And depending on the second half, hopefully, we are moving into a window where the business outlook is a little bit better than where we ended last year. I think it all depends. It's very difficult for us to prescribe the version ahead of time. Give us some time, we'll probably update you along the way. Yes.
Can we have Joy, please?
Yes. Just a follow-up on logistics. Have you started negotiating with your tenants on renewal? Because we are seeing quite a lot of supply coming through this year. What's the results nonrenewal at this stage?
Yes. I think definitely, this is something that we are watching very, very closely, especially. This is something that we are renewing for the first time since acquisition. So we are clear that there is something we'd like to do. Obviously, we have already hit some and negotiated some of them. But as I mentioned, we have to choose that window, right? I mean if you were to do it too early, sometimes it may not work directly into our favor because this is the first time. So what we are trying to do is to progressively -- I think by June, by September, we're going to close some of these negotiations. You're right. So supply as an issue is city-centric is submarket centric. But so far, I would say that the location of our logistics, it's good. It's near to all the transport nodes. And so far, if you look at Shanghai, if you look at Kunshan, I think these are okay. [ Wuhan ] probably will feel a little bit more in terms of competitive supply. So I think that is the first one that we're trying to address. Yes. So [ chengdu], again, this is only asset we have many, many small leases. So we are also trying to look at how this thing has done in the past, whether we can elongate some of these spaces to tenant up differently. Definitely, this is a core area of what we want to do. To answer you and David, it's very hard to guide reversions. And at this point in time, supply landlord tenants, they are always in their bargaining situation. So let's see, yes.
Okay. And I guess just on the strategy itself, right, when we took on this sort of new economy assets, supposed to diversify risks in terms of earnings and et cetera. But having owned it for a year and about a bit, how do you feel about managing some of the risk? Because actually, the tenancy risk is very different, right? For example, your Hangzhou business park, so do you feel that it actually distract you from looking at your shopping mall and doing your AEIs at your shopping mall and getting better rental reversion there?
I wouldn't say this -- I mean it's part of the strategy that we want to diversify and we have inherited that commercial teams that are looking at business parks for all the time. So it's not really like having a retail team looking at new asset classes, but more so of already absorbing the existing Ascendus-Singbridge team. We have been looking at the same assets for the last decade or so. So I think from that perspective, I wouldn't say it's a distraction. Looking back at our strategy to diversify, I would say if you look at how we have navigated 2021, 2022, the whole vehicle is strengthened by the new economy in terms of that pivot. I mean if you look at our core earnings profile, about 70% came from retail and the new economy actually contributed to the 30%. Of course, if you look at 2021, 2022, which are the ones that are more subject to COVID measures, it's actually the retail, right? I mean the business parks and the logistics give us that earning base, although they are not as large as the retail, but at least a 30% of earnings profile is stable. Retail needs a lot of more active, I would say, adjustments along the way. And that's why you see a lot of the identified AEIs are exactly to do that, notwithstanding we take down some of these assets, but to let them be stronger in the second half to capture the spending. So I mean, on totality, I think the new economy has helped us to diversify not just geography but also asset class and tenant base. If you look at our top 10 today, 5 of them are already coming from the new economy. Of course, Hangzhou, it's a case in point where if you look back the disruptions, the smaller enterprises are the one that felt the heat a bit more. And therefore, from a leasing angle, we probably got to rethink whether we want to [ mess up ] to bigger players or different sectors, but that was a decision taken a while ago because e-commerce start-ups were on the rise.
But now that the market may change or pause or things are slower, I think this is just part of the business that we've got to keep adjusting ourselves as we find what are the tenants we want to bring in. So this brings us back to the point where I mentioned you have to balance a bit on occupancy, the sector they want to attract and also asking rental. And I think this is just part of the business story.
Yes. Okay. And then just one last point on funding. If you were to get the onshore loan would be funding cost for that SGD 200 million? And why are we deciding to take the loan offshore instead of onshore?
Yes. The first point is because the -- it was the offshore loan that's up for refinancing. So technically, if I can borrow onshore and free flow the money out offshore, that will be something that I would be keen to do. But today, the cross-border repatriation does not allow us to do that. So it's a offshore refinancing with the [indiscernible] offshore. To your question, today, if I were to take an onshore 5-year loan, the LPI is at 4.3%. And based on the negotiation, sometimes we can work within like 30 bps to even 50 bps below. We have done 30 bps below. We are negotiating for even better. So that's where things stand. So we can do an onshore borrowing at about 4%, whereas offshore, we are probably doing 4.5%, so to speak.
But as long as that repatriation doesn't get resolved, there's no -- I mean, it's not fungible, right? We can't -- you cannot really increase onshore borrowing at this stage?
That's correct. Onshore borrowings can only be used for onshore needs. For example, some of these AEI CapEx, some of this dividend flow back where we exhaust some of the cash onshore for other purposes, it's not easy to flow them out like-for-like, yes.
So actually, very technically with lesser you borrow onshore using [indiscernible] for core cash can be used onshore [indiscernible]. So systemically, it is difficult for us to bring back to refinance cost, I mean, that. I mean if you are trying to [indiscernible] other ways to actually refinance -- which give us more favorable reserve offshore [indiscernible].
[Operator Instructions] I'd like to pass the time on to Derek.
Can you hear me?
Yes.
I just want to go back to your portfolio of business park and logistics, right? So I look at Hangzhou when occupancy is at this level, I'm just wondering whether -- I mean, there will be demand, but where is demand at what price? Are they coming in at your asking rents? Or do you think you will need to drop rents a little just to fill up the remaining 5%, 10%? Just curious.
I think it depends really on how deep the relationship, how fast each other want to close the deal. But all things constant, I mean, there will be some pressure on asking rent because of new supply coming in, and everybody is also trying to capture the relevant demand. So I think there's a bit of that going around. So that's what I was trying to explain that as you look towards 2023, if you want to close deals in the first quarter, likely that you have to be a bit more accommodative on the rental side of things. And that's exactly why we are also assessing the situation, trying to balance whether it makes sense for us to drop how much to allow that to happen and whether the tenant is something -- someone that we want that once you bring them in, you can build the tenant community around it. So I think these are some of the business decisions that we are working closely with our property teams. I hope that gives you some color on the business side.
Okay. No problem. I just wanted to get a sense, regarding filling up the property, certainly, it's much better, I guess, because it's empty space with no income, right? But I just want to look at -- apart from Hangzhou, if you look at Suzhou, even for the innovation towers, are we potentially at risk that you could see occupancy fall off a little bit? Is that...
I think -- yes, if you look at the current tenant exposure we have for each of the [ suzhou ] and the 2 [ saihans' ] I would say there are more -- I would say they are stronger in their park positioning and then the kind of new demand, replacement demand or renewal demand, some people who are already in our property want to expand space where single Hangzhou is really because of the last few years. I think we have been waiting quite a fair bit towards the smaller players. And I think that is also resulting of the business environment changing and some of these players were not be able to play the same. And I think there will be some adjustments on that front, timing and also the new selection of tenants. So I think you'll see that a little bit more peculiar to Hangzhou. But for the 2 [ saihans' ] I think we have been bringing it up to that 90% -- so I don't think that, that is far away. And I think [ zhengzhou ] very early -- I start off by saying that it continues to be very steady. So I think in terms of profiling each of these, I think the Hangzhou is probably one that -- this year, we need to spend a bit of time to fill it up and at what rental and who to fill up with.
Okay. Got it. Got it. Sorry, just to go back to your logistics. I know you have addressed it earlier. But if you look at, let's say, in-place rent versus where the signing rents are, do you reckon that we would see stability for whatever leases that's coming up for renewal this year?
Well, I mean we are gunning for flat, yes.
No problem. Flat the new plan. That's great. Okay. I just wanted to go to your asset recycling, right? I mean, in your Slide 34, you mentioned that you wanted to diversify. I think just wondering whether in terms of acquisitions, do you think that is a window for you to buy well at a good price? And do you think that window will close as China reopens? And similarly, also on your -- previously, you talked about selling assets, right, to fund some of your acquisitions. So I just wanted to -- if you don't mind just refreshing our memory on this. Yes.
Yes. Yes. So I mean, very good question. I think we have always guided that ideally, we would like to monetize something, right, to unlock recycled to fund whether we have intention to bring them in. I think this approach remains the same. And I think from the divestment front, in fact, as we move into the first quarter of this year, more people are able to travel, more people back to the drawing board. So I think that hopefully will help us on that front. Once we can unlock value recycle, I think it makes the concession easier for us to look at some of the targets that we are already identifying. The other good thing is, I mean, if you look at last year, I think there's a lot of more volatility both on the debt and equity side. But I think as we go into this year with China reopening, and I think interest rates, I think we have mentioned, we are really leveling off, I think that should help us. Of course, I think we have to think about the sources of funding and how much and what deal size. I mean these are something we have to calibrate more carefully.
Got it. Got it. Sorry, just last one for me, I just look at your retail, right, I think the metrics are looking very encouraging. But generally, what we have also noted is that rents tend to lack the sales up. Just wondering if you look at -- if you try to look at 2023, I mean, if let's say, tenants continue to do well, your reversions for retail, are they going to be bleeding the recovery this year? Or you think you will be a bit more careful and let your tenants gain back a little of their profits first before you start to move that rent?
Yes. So if you look at our retail strategy, the main reversions drivers will come from the few AEIs that we mentioned, that is also to drive the whole portfolio. With the AEI space and what we are bringing in on a net basis, the portfolio is actually on the positive territory. So that will allow us more space for the organic [ growth, bread and butter ] to renew. There will be a little bit of that downside pressure still selectively. Especially for the first year, if you want to bring in stronger brands. I mentioned earlier that most of the negative reversions that you saw arise because of us replacing some of these more fashion-oriented space. But over time, that fashion is going to become less and less of our portfolio in terms of passing. So hopefully, that will then help us to avoid bigger negative. And if you look at where the F&Bs are trending the services, the leisure, even the health and wealth, sports apparel, I think these ones you mentioned, if they do good sales, it gives us better room to ask for higher rental in the subsequent years. Good thing is if you look at our occupancy costs across our portfolio, I would say, in the first quarter, with the sales coming up with some these rental adjustments that we have given to the retailers, they are now much better in a healthy zone, about 20%, right? And I think you will know in the COVID situation, it was much, much tougher. So I think with that, I think give them a bit of time outlook improving traffic, sales picking up, then I think we enter into a more normal kind of cost structure that we can then move on from there. So a lot of effort this few years is actually on the AEI. So we started off with seasonal. [indiscernible] with Yuhuating. And then now we are doing Grand Canyon and Rock Square. So these are the key ones that will help us move that reversion. And year-on-year, if you look at where things were last year, first quarter and then 1 half, there are several malls that went through quite tough times, right, in Harbin, in Inner Mongolia. So this year, I would say easily they will do much better because things are opening up. So these are the malls that will help to give us that year-on-year effect as we take that opportunity to do AEI in the first half of some of the selected ones I mentioned with their contribution coming in the second half. So that is how we try to -- as we work through the portfolio, that's how we think about 2023.
Can I pass the time to Terence, please?
Wanted to ask a little bit about -- I understand Tze wooi you spent some time in China. You're visiting the malls. I wanted to ask you to perhaps you can share some of your observations. I understand that there are some concerns right now as to whether -- on the strength of Chinese retail sales recovery, I mean coming out of COVID, there's some who feel that this should have been stronger. So do you feel that the retail sales -- and of course, CLCT's retail sales are actually growing at a stronger pace versus, let's say, overall country retail sales. But how are you seeing the Chinese consumer? And how's your portfolio do we on the ground, maybe some on the ground insights?
Yes. So I mean, we have, what, 11 cities. So each city, each submarket catchment, it's -- one thing to talk about China is, sometimes we need to be [indiscernible]. It's very hard to generalize. I mean, we were so used to Singapore, right? Singapore is like just one market. But as I go to Guangzhou, Guangzhou has its own point of recovery relative to, let's say, Beijing or Yuhuating or even in the [ Nuohemule ]. So just like I mentioned, if you look at where things left off in the northern sector. I would say that the first quarter of 2023 is encouraging because last year, the fourth quarter, essentially, most of our northern malls are not able to operate profit. But in the first quarter of 2023, you see them coming back. And a lot of the sales year-on-year growth arose from that component over what I mentioned earlier, the post-AEI effect of some of our sentiment and one thing that's driving. And Yuhuating, after our AEI, I think that will also progressively help in the second quarter of this year. What's my observation? First thing is definitely business activities leveling up and is leveling up month-on-month sequentially. So if you go to the airport, you see more people, if you go to the office lobby, you see more people. You travel on the roads, you see more cars and jams. So these are signs that business activities are coming up. So I think on the whole, this is good. What is not so apparent or what is not so good is that I think there are some scars from the COVID. You can talk to a lot of people, some of them are [indiscernible]. Some of them are retailers. I think you need to give that a bit of time for the consumer sentiments to come back. Things are improving, but probably the pace is not as soon as some of us expect it to be. This is only the first quarter of 2023. I mentioned January feb is relatively quiet. So only March, you see a bit more. So I think that let that trajectory run its cost. I think that's good. What's on the mind of people that I have talked to when I was in China, I think a lot of people are also looking at the income that jobs. I think it's quite real that in the past few years, family income could have been impacted. And therefore, people are a little bit more cautious in where they spend. And I think that's very important for us to know that when people spend, their first spend would be channel wear. So I think F&B is probably where we see a lot of spend a little bit on the health care, their wellness, the younger people to all this athleisure. So I think these are some of the trends that we are seeing on the ground. So I think the key is whether we can capture and lease the space concepts, be able to bring them in and attract some of this spending. Among the cities, I would say Changsha, it's less impacted. They are very fortunate. So the people over there I think in terms of the mind, they are more able to go back and spend more time outside. I think this is very much in that culture. So we do see that happening. Maybe I missed, I mentioned about North Beijing is improving well. Guangzhou is recovering well as well in terms of people coming out.
And actually, just to clarify, did I hear correctly, you said occupancy cost is down about 20% for your malls?
Yes. So it's the portfolio for the first quarter, where we end first quarter because of the improved sales and also some of the passing rent adjustments, like I mentioned earlier, we -- especially in the first year, some of these new ones that we brought in, we give them sometimes the first half to 1 year. So they are now trending around the 20%. If you follow us, you would know that it went as high as 30% last year.
That's very encouraging. And finally, I guess, maybe a little bit more on the acquisition front. I guess, previous guidance was that you are looking a little bit more at the business parks from your sponsors portfolio. Is that still similar guidance as from last quarter?
Well, I mean we have been focused on wanting to strengthen our retail holdings. If we can unlock value from that to channel the capital towards bringing in new economy, that is our ideal focus. So I think that stays. Yes.
Thank you, Terence. Over to you, [ joel ], please.
I just had 2 questions. The first is regarding the footfall and sales for first quarter 2023 against first quarter 2019, is this on a same-store basis? I know you said that it's 95% pre-COVID for sales. So for the footfall, what would it be like?
Yes. Essentially, they are on the same basket of assets adjusted for the holding period because I think 2019, we do not hold certain assets for the full financial year. So I think we were also trying to compare on a 2-year basis, what that means. So if you look at the retail assets, there's only -- in 2019, there are some assets that the holding period is not for the full year. We do count it for -- you can held it for a full year, what that number would have been. The other small change would be in relation to we swapped an asset in the Inner Mongolia for Saran with Nuohemule. So I think in terms of looking at the basket, this is essentially that small change. But other than that, the number is measured on a same-store basis.
Understand. Could you share the percentage in terms of footfall 2023 versus 2019? is there like a 90% recovery 80%?
Sorry, can you repeat? We couldn't quite hear you?
Yes, sorry. The question is for footfall, what's the recovery percentage? Like, is it 80%, 90%?
If you're looking at March itself, I think that it's already in the 80% -- 80-plus percent versus 2019.
I think that recovery is a range depending on more now. So I mean, obviously, for our loss like demand, we are looking at Nuohemule already really reached 90-plus percent, 90%, 95%. And then there are some that are still recovering a little bit slower safe for example, capital loss number. On a portfolio basis, I think we are looking at around 86% for the PG side, around 80% for the non Beijing malls yes.
Okay. All right. One more question is regarding -- because I was looking at data from like across -- in Hong Kong. And I actually saw a sharp pickup in like, say, luxury brands and fashion apparels. So I was wondering if you see something similar? Or is that more like a tourist or Chinese tourists going to Hong Kong and making those spend rather than your kind of -- the crowd that you cater to at your malls. So just wondering if you could share some insight on that.
I mean it's difficult for us to comment on whether someone else Hong Kong portfolio is because of tourism. I mean it's difficult for us to comment, but our malls are oriented more towards the catchment family spending. So it's less playing to the kind of touristic kind of traffic flow, so to speak. And our portfolio are shaped more towards the daily necessities, the lifestyle, the kind of brand mix, kind of [ trade acts ] are more to support the family to orientate them to come to our mall. So lux is probably not an area that we look at. But we did share with you that if you look at the sales, we do able to see uptick, especially in the in the F&B, some of the beauty and health care, in terms of jewelry, in terms of services, in terms of leisure entertainment. So these are some of the ones that our data points suggest that 1Q if that flow of people this spending, these are the main categories that we see capturing.
Do we have any last questions? Okay. So this is actually the first quarter that we have, that we actually end 1 hour on the dot. So thank you, everybody. I mean, feel free to just recall you if you have any questions. Would you, Tze Wooi, like to give any...
No, right. I think we have given you the business update. I think key message is 1Q. We are moving into improving business environment. Hopefully, with more pro-growth policy support and the stimulus, the government is looking at the business confidence and consumer sentiments to continue on that trajectory. On our hands, whatever AEI we have done last year will help to provide us that stable and uplift while we take some of the other asset spaces to continuously do the AEI that will then start to contribute in the second half of this year. And on the new economy, I mentioned, we are capturing the new demand I mentioned earlier on the BP. And then for logistics, we're looking at renewals. I think this is a focus and we can recycle some of our capital. I think it opens up a window for us to look at acquisitions that continuously to strengthen our portfolio. All right. With that, I thank you very much for your time. See you next time. Yes.
Thank you. Thank you all. See you.