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Good morning, ladies and gentlemen. Welcome to CapitaLand Retail China Trust 2018 First Half Result Briefing. We are delighted to have you today. I'm Lee Nah, your host for today. We shall start today's session with a presentation by the CEO, Mr. Tan Tze, after which there will be a questions-and-answer session with the panel. Without further ado, I would like to invite Tze to share with us the details of CRCT's performance for first half of 2018. Tze, please.
Thank you, Lee Nah. Thank you, everyone. Good to see you this morning. I know it's a Friday, very busy period for all of you. Okay, I would quickly just share with you the presentation results that we released this morning, and I think spend a bit of time on the Q&A. Hang on. Yes, sorry. Okay. I'll quickly walk through with you the highlights, cover a little bit on the capital management part of things, the portfolio activities and some of the asset management work that we've done for this quarter before ending on the outlook. Happy to share with you that, I think, for CRCT in the 2Q, our distributable income is $25.7 million, which represents a 10% growth over the same period last year, I think actually contributed by our Rock Square's first full quarter contribution and also our multi-tenanted malls, the core portfolio, registering improvement, set up by a little bit on those malls that's under stabilization, translating into a distribution per unit of $0.0264. Although on an unlatched base this still represents a 0.8% year-on-year growth over last year. And if you adjust last year's unit base on equivalent basis, this represents a 8.2% year-on-year improvement. Over the 1 half, you can see that we delivered 9.8% year-on-year growth of distributable income of $52.4 million, translating to $0.0539, again 0.6% year-on-year on an unlatched unit base -- basis, and if you adjust it, you would be on a 7.8% year-on-year improvement. At the operating level, we're also happy to report that for this quarter, a broad-based rental reversion improvement, 10.5% across our malls. Occupancy continue to be strong at 97.4%. And in terms of the tenant sales, despite a slight dip in our traffic, I think sales continue to improve at 1.2% improvement. I mentioned that for this quarter, we're happy to see Rock as a quality addition to the portfolio, showing a rental reversion. This is the second quarter where it shows a more than 20% of rental reversion, so it's quite a positive momentum and we are encouraged by that. In the second quarter, we also managed to bring in a little bit more notable brands that resonate with the younger crowd. This is something that we wanted to do and I think we've done it now, brought in Xiaomi and also this [ Wanghong ] kind of bubble tea concept. At the same time, our team has also identified some unutilized area, and we're actually added some new NLA and added more retail kiosk, improving the retail offerings available. The second quarter also see us being quite active and busy. As you know that we entered 2018 without any financing dues. So we've actually spent some time to actually refinance ahead of maturity. In the second quarter, $150 million of the loans have been done. We are stretching it to 4-year and 6-year tranches. At the same time, we've also issued $130 million of notes under our MTN program, $130 million for a 4-year tenor at a locked-in price of 3.25%. At the same time, we extend the debt maturity if you count this in to about 3.43. At the same time, there's $120 million bridge loan in 2019 that we are progressing with the loan documentation, so we're finalizing that very soon as well. So essentially, the whole of 2019's refinancing will also be completed very soon. Our healthy gearing maintained at 32%. This is a quick snapshot of the distributable income right from the top line. As you can see, the gross revenue and the net profit income, this reflects the divestment of Anzhen, which resulted in the top line being reduced. At the same time, the Rock has a contribution as in terms of accounting. We account for it as a joint venture, so it's gross revenue and net property income does not go into debt line. Instead, its contribution comes in the distributable income line of $2 million for this quarter. I mentioned about the distributable income and DPU. I'll not repeat on that. And based on the closing price, as at end of June and also at yesterday, the yield is at 7% and 6.9%, respectively. This is the first half picture, very much mirroring the first quarter. Looking at the distribution per unit, the yield would be 7.2% and 7.1%, respectively. As at 30 June, our balance sheet is healthy. The investment properties, we did a valuation, so there's a slight uplift a little bit as well as a stronger RMB at the close of June. So that translate into a slight increase in the NAV. If you exclude the distribution, we are at about 1.66 NAV level. This is for us to take note. I think for the distribution timetable I think the key dates to take note, the book closure date of 6th August and also at the 7th of August, we'll be announcing the DRP price, and distribution, we expect to pay out for both the first -- for the $0.0539 on the 20th of September. As you we can see the CRCT, I think we are still uniquely placed and we are very attractive relative to some of the alternative investments in the marketplace. As at 30 June, I mentioned our gearing remains very healthy at 32%, way below the regulatory limit. Our cost of debt is also very competitive at 2.6%. I mentioned earlier the term to maturity is about 3 years as at June, but if you count the bond completion in July, that will stretch us to 3.4 years. And in terms of the interest coverage and the net debt-to-EBITDA, this ratio has continued to be very strong at a very high level. And 100% of our assets are still unencumbered. This is the maturity profile of our loans. As you can see, the $130 million has been pushed to 2022, and I mentioned earlier the $120 million in the 2019 block would be pushed out to 2024 very soon as well. So it's a well-staggered maturity profile and also give us a lot of financial flexibility entering second half of 2018 and 2019 for us to prepare our next phase of growth. Our interest rate and FX management, we continue to adhere to our conservative policy, where 80% of our interest has been fixed already. So that mitigates a lot in this kind of interest rate environment. At the same time, 50% of our distributable income also been hedged into Sing dollars. I mentioned about the first half portfolio valuation. You can see leading the portfolio are the 2 pillar assets of the Beijing Xizhimen and Wangjing where it shows a 2% valuation uplift compared to half a year ago. And the rest of the malls, essentially just tracking a little bit of about that 1% growth and also holding constant for some of these malls. All-in the portfolio is at 1.2% increase over last year. At occupancy front, you can see for the multi-tenanted malls, I think we continue to be resilient in terms of the occupancy, ending the period at 97.9%. If you count the master-leased in, the portfolio will be 98.5%. Minzhongleyuan, we'll talk a little bit more later. I think the mall is still growing through a little bit of stabilization activities. And this quarter, we have also been guiding the public that I think for Wuhu, we have also taken steps to partially close the mall. So overall, the CRCT ends about 97.4% of the occupancy.
Reversion, this is the picture across for the second quarter. I think we have done 205 leases for the last 3 months. I think it's quite a healthy picture to see, that is quite well spread out across all the malls, and some of these malls also improving sequentially over the first quarter. So very happy to report this. This is the first half picture where you can see the momentum has been extended from the first quarter to the second quarter. In terms of the remaining half of the year, I think we have done quite a good job in terms of the leasing expiries. For the second half, we'll continue to build on that foundation. You can see the number of leases still to be renewed, and that gives us another opportunity to extract growth in the second half and that would be our focus. This is the expiry profile by year. I think still very much consistent in terms of the weighted average lease expiry by income and by area, still very consistent relative to the last period of reporting. Shopper traffic, if we count the Rock Square, I think you can see that our portfolio in terms of the footfall has definitely increased by a large quantum. If we look at the portfolio excluding the master-leased malls and also the Rock Square and Wuhu because of being shut down, I think there's a slight dip. We can talk a little bit more later on which are the malls that having -- being impacted or disrupted by some of the temporal operating landscape changes. First half shows quite a similar trend. If you include Rock Square, it's 16.9% and 4.2% on a same portfolio decline. I mentioned this one, I think if you look at, although there's a slight decline in the traffic in terms of the portfolio sales, I think there's not much of an impact. In fact, it's an improvement. Just a few asset highlights on the particular assets that we'll like to talk a bit more. I think I mentioned the creation of the new NLA. I think that the job has been done in terms of ever since we integrate and takeover in the first Q, we continue to focus on wanting to improve the kind of brand quality and the kind of offerings. I think the strategy has borne a bit of early fruits. We have actually identified and created some new NLA and some of the new brands that we've brought in have also increased the current crowd-pulling effect, as you can see in some of the pictures over here. The other major action that we want to share with you is the Level 4, the recovery of the old department store space. I think we have done the preleasing work and progressively in second quarter, 19 out of 23 of the new retail concepts have already opened. And we have seen quite an improvement in terms of the energy towards this Level 4 and especially to towards this corner of this zone where it used to be a little bit more data and a little bit more low energy because of the old department stores. So things are improving. We expect to see this quality improvement coming through in the second half.
The -- I think to bear in mind is also to see the active asset management part of the work where we reduced the exposure to department store space. And in return, we brought in more interactive and experiential trade categories as you can see in the bar charts that we have disclosed over here. Over at Saihan, I think it's been a very steady contributor to our portfolio. In fact, in this district, in this capital of Inner Mongolia, we are having quite a strong leadership position. And we also see this market improving over time, where more quality brands have also started to enter this market. So in terms of the leasing synergy, we also start to see better synergistic effects, and we have able to cross certain popular brands within the CRCT portfolio of malls, brands that have booked with us and are successful, we have crossed them and managed to also bring improved shopper, tenants, image and shopfront that we've done in the Tier 1 cities and bring it into Saihan. And again that makes all more -- a bit more popular in that local competitive landscape. So in terms of like some we have mentioned and also some of the brands over here. Across our portfolio, I think we have also been spending some time to build out our brand identity and also especially in the social media. I think this is the kind of Marcom event that we will like to do more going forward where we have active participants from both the tenants, our CapitaStar members and also the media and staff raising publicity. So this is one of the item that we did in terms of the GREEN Cycling Event, held concurrently across all the northern malls, so these are some of the pictures that we are sharing with you for 3 of the CRCT malls that participated in this event. On the outlook, I think I will just end on the -- on a note to bear in mind, I think we -- CRT is quite uniquely placed. We are a diversified quality retail exposure as REIT. So I think if you look at the current landscape, there are not many who gives us the kind of exposure to these shopping malls. If you look at China as a whole, I think we're very well placed to benefit from its domestic economic emphasis. Just this week, I think they reported a GDP growth continue to be strong for the second quarter at 6.7%, retail sales continue to be strong at 9.4%., and the twin engines of disposable income and spending is also increasing at 7.9% and 6.8%, respectively. So all these are very good operating environment for us to be in, and this is going to be continued by the urbanization and consumption growth trends. The other key thing to bear in mind is I think there are no other retail market today that is as dynamic in terms of retailing trends and in terms of this consumer confidence that we observe on the ground. So again, I think there's a lot of room and opportunities as all these trends pan out. There's a lot of evolving lifestyles that in a way that presents a lot of opportunities for landlords and also retailers to collaborate, to reinvent our various business models and also to create a lot of new content and offerings that will then bring people back to the physical space of our shopping malls. And a lot of this is also on if you look at China in the high penetration of digital initiatives, the use of smartphone. So all these are very much entrenched. And I think this is something that as a active landlord, we'll be spending a lot of time to cultivate and to extract growth from all these areas. So if you look at what CRCT is in terms of focusing. I think on the organic front, I've mentioned, we want to partner with quality retail -- retailers to inject that new concept. We have scale. So in terms of the operating and in terms of the leasing synergies, and in terms of the operating efficiencies, this is something that we have an advantage, we want to continue to ride on that. At the asset management front, I think this is another pillar that we have been working and will be focusing to rejuvenate and continuously enhance the kind of appeal of our mall using the space and injecting newer retail content and by so doing, increase the shopper stickiness. And the apex of this will be continuously looking at how to optimize our portfolio. This includes monetizing some of the assets that have reached a mature stage or optimal stage, and we'll continue to pursue acquisitions that will add value to our portfolio. And this includes third-party, in-house and also some of the redevelopment opportunities within our own portfolio. And underlying this with our disciplined capital management and healthy balance sheet, I think that's something we'll continue to do to deliver value to our unitholders.
I think on this note, I'll probably end the presentation. I think the rest of the appendices, I'll leave you with the content, and I'll again talk through them where we need, all right? Thank you.
Thank you, Tze. Now we will like to invite our management to the panel for the Q&A session. We have Joanne Tan, The Head of Finance; and [ You Hong ], Assistant Vice President for Investment and Asset Management.
If you have any questions, please raise your hand so that my colleague can hand you a microphone.
Can you discuss the tenant sales as well as the footfall? And why they look weak during the quarter?
The tenant sales?
Yes, I mean the tenant sales was just marginally positive, and the footfall was marginally negative. So if you could give some color on the portfolio.
Okay. Because this -- for this particular quarter, there's the inclusion of the Rock. So we wanted to show you both the with Rock and without Rock. So in terms of the tenant sales, if you look at, because of the way we present tenant sales is expressed in terms of per square meter basis. Currently, Rock Square, it's trending at about 1,006 per square meter. Our existing portfolio, because of the 2 Tier 1, especially Xizhimen and Wangjing, is already trending at about 2,006 level. So by the inclusion of Rock in terms of per square meter basis, actually it is, we do not have that effect so to speak. Although Rock Square, we see a lot of potential in terms of stretching its tenant sales. In the last 5 months of our takeover, we have already seen improvement in terms of some of the brands that we brought in and also improvement in terms of the sales. If you exclude the Rock effect, if you just strip -- breakdown the underlying portfolio, the 2 strong assets like Xizhimen and Wangjing continue to show strong tenant sales of strong single-digit numbers. In the first quarter -- second quarter, sorry, there's a little bit of a decline in some of the other malls that we are seeing. One of them is actually Saihan because of the external subway that is being built around it. So that's a little bit of impact with its traffic and also in terms of its sales. Also a little bit on the Grand Canyon, this in terms of writing, I think also a slight decline because of some tenancy downtime adjustments. All-in, there are some on the plus side and there are some on the minus side, yes.
Okay. And a follow-up question. I think 6 months ago, we were discussing the portfolio performance and there was an issue with Grand Canyon, there was -- is that still persisting?
Yes. I think 6 months ago, I think I mentioned a little bit on -- and that has coincided with the political period where Beijing is having very sensitive -- as we speak now, we are going through a little bit of operational discussion with the authorities over some interpretation of today's newer fire code. So there are certain areas that we were using, and in their opinion, we needed to do a little bit of adjustment. So in the last couple of months, we've actually actively engaged them to see what are the programs that we can put in place to progressively move towards a stage where we know we can meet their expectations. Such things do happen in China, I think our ground team is spending quite a lot hard of effort. As we speak, you can see that the impact is also being narrowed in terms of the gap. In this particular quarter, a large part of the gap is because of the one-off tax refund that was received by the Beijing government in the second quarter 2017. If you look at the net property income for second quarter '18 versus second quarter '17, a huge part is actually in relation to that. In terms of the operational, yes, there's a little bit of disruption as I mentioned, but things are improving on the ground, and I think the gap is closing over time.
[Audio Gap]
Yes, I said balance sheet date, at June, yes, all the borrowings are in Sing at this juncture. But over time, there will be a little bit of natural RMB borrowings that will be taking on onshore as well as part of the acquisition. That's something we would do as part of the natural hedge. As of June, you're right, it's in Sing.
[Audio Gap]
Yes, yes, yes. That's right.
And how -- I mean how hedged are you on your debt refinance.
Yes, yes. It's a good question. And I think in terms of hedging, I think we actually take a very active approach. And we do monitor how the rates correlate. So far, I think we are still fortunate in the sense that the RMB rate volatility against the Singapore dollar is not so bad. RMB has weakened relative to U.S., especially since the trade pension, a lot of talks about whether they will let the currency weaken to combat the trade war. I think they've come up and made a little bit of clarity on that front. I think what I gather from them is they will not devalue RMB to fund the trade war. I think they also have in mind other parts of the economy to take care of, I think and so the confidence in the currency, but it'll result in the capital outflows like couple of years ago. So I think all of these are playing in the minds of the political people over there. So while we're watching on the ground, it's, as much as we can, we hedge within the narrowband of the exposure. And as I mentioned, for the distributable income, we have hedged 50% at this juncture, we'll continue to monitor it. If you look at the historical movement between RMB and Sing, I will say that in the last -- if you trace back in the last 5 years, it has always been moving at quite a tight range. And also because of the way that they manage the exchange rate, RMB is also now weighted against the trading partners, which the Singapore dollars is also the same. So I think they will move a little bit or not, sometimes there would be a slight up and down, but over a period of time, it's still within a narrow range, yes.
Sorry, maybe just a follow-on from the last question.
Yes.
Just wanted to check if you were to take RMB-denominated debt, what kind of funding costs, whether onshore, offshore would you all be looking to incur?
Today, if we look at the RMB PBOC rate, it's roughly in the range of 4% over to 5%. Their abiding is the 4-ish percent.
4.75% for 5-year tenor. Yes, it's higher.
Yes, it's much higher. Today, if I were to take Sing dollar, my effective right now, I mentioned it's about 2.6%. I mean if you put in a little bit of the hedging cost, that will of bring it up to maybe another 3%, 3-ish level.
As a comparative, note that we issue is only issue of a 4-year notes we issue at 3.25%. So vis-a-vis the 4 -- 5-year PBOC rates, which is currently at 4.75%.
[Audio Gap]
As of June, we don't, yes. As of June, we didn't, yes.
But that's the nontranche. But generally, do you swap?
Our policy is that, no, we look at hedging. We look at hedging. At June right now, we hedged distributable income part of the RMB exposure, yes.
Can you remind us how you get the [Audio Gap]
Well, I think a few channels, I think a few of our assets have that grandfather structure where we have the offshore shareholder loans. So interest on the shareholder loans are being repatriated periodically. So that's one avenue. The SPV in China itself on an annual basis after they settle all the required taxes, they can also repatriate the dividends in the form of annual dividends. So that's 2 ways of extracting of the cash-out.
And then [Audio Gap] Grand Canyon, has it -- versus 1Q, has that been -- I think it looks like there's been some stabilization, has it? I mean....
In terms of sequentially, I think the footfall, I think you can see on a quarter-to-quarter basis, I think there is an improvement. If you look at the rental reversion on the quarter-on-quarter, again I think you see some improvement on that front. So I think what we are doing on the ground is really to strengthen the operating competitiveness of Grand Canyon despite that we are having a little bit of so-called the work-in-progress areas that we need to do. And that's being programmed over a longer period of time where we need to put in a little of CapEx to -- at the certain corners of the building, maybe to create a bit of exit and all this. So I think that's part of the greater CapEx plan, part of the greater CapEx spend that we want to look at the circulation. So all this actually part of the whole asset enhancement, the leasing the tenanted area, so this is something that is a little bit ongoing. So while we discuss and put in place this program, the other area is we actively manage in terms of the area. And some of the lease lines, we've actually pushed it out a little bit. So all these are active measures on our ground to gain back a little bit of net lettable area.
And what is the timetable for the other AEIs, for the other 2 malls that are at Minzhongleyuan and at the Wuhu?
Okay. Timetable for Wuhu. I think Wuhu, we are actually guiding that we will be shutting down the mall, yes. Because I think this is a mall that, objectively speaking, is not easy for us to turn around. I think it's a Tier 4 city, the kind of leasing that one that we have is not easy for us to transfer the kind of synergy over. And I think we have been operating the mall at a loss for the last 4 years, so I think by shutting down the mall, we definitely will be reducing the operating costs and running costs, so I think that's stage 1. Stage 2, we will be looking to exit this market where I think we are very small. We don't see this market continue to be our call, and bearing in mind that CRCT is just a JV holding this Wuhu. So I think all-in, I think this is not an asset that we can actively extract a lot of value by holding it. So I think the direction is for us to exit. So we already put that program in motion, so we hope to share a bit more with you hopefully by end of the year, yes. As for Minzhongleyuan, this is an asset that's also going through a little bit of challenge in terms of the competitiveness in that landscape. We mentioned that over the last 2 years after the roadworks subway building and then the whole resettlement around that area has made the center of gravity of retail further down the road. So I think it's not easy for us as a small 20 over thousand square meters to compete head-on against these traditional leasing prospects, so what we want to do for Minzhongleyuan is to create a more niche destination for the younger people, and that's why we collaborate with the Ucommune, the weaver type of tenants. And we want to make Minzhongleyuan a little bit different from what's available in the market. So that is taking place. And you can see the occupancy reflecting that change of the tenant mix and so on. If you recall, Minzhongleyuan used to be occupied by a lot of all these very, very small sole proprietors taking short lots of 10 square meters. But over time, that generation have also moved on. So it's not easy for such business practices and business models to be competitive in today's market, especially in Wuhan. So we are trying to transform the mall to fix -- to orientate it a little bit more towards nontraditional retail, and that is taking us a little bit of time in terms of changing the entire mix, yes.
So we -- sorry, a few questions. First, when should we expect Wuhu to be closed by? Are you able to reveal that?
I think you should expect us to officially tell you by the end of the quarter. This is something that we will be working towards. We are at the closing ends of tying up all the termination arrangements with Walmart as well. So we hope to share with you a bit more in the next quarter to come. As we speak, the ground is already in the final stages of tying up all these loose ends, yes.
Okay so -- okay, and then the second question on the distributable income, you said you are hedging part of it, right, for the exchange rate?
Yes.
So what percentage of it is hedged?
50%.
50%. Okay. And just a little bit more on Wangjing. So have you seen most of the uplift from the conversion on Level 4? Is that already in the results? Or should we see more of that in the...
You should see more of that in the second half. Because the so-called, the renewed units have been progressively started trading only in the second quarter. And as I mentioned, as of June, 19 of 23 have traded. So there are still a couple to come. So the main uplift we should expect in the second half.
Okay. So then just to check, I think for the rest of the year, there's some -- in terms of the upcoming leases at Wangjing which are going to expire, that's about 20%. Is it -- and these do not exclude -- these don't include the ones on Level 4?
We have mentioned Level 4, where I highlight the 19 of the 23, it was for the zone that used to be occupied by the department store. So arising from that, we have created quite a lot of upside in value. As for the rest of the Level 4, I would expect that as Level 4 becomes a bit more vibrant with activities, that will also have a natural spillover in what we intend to do for other parts of Level 4's, expiries, yes. So the 20% that you mentioned is not including the Level 4 because for the Level 4, it's a new leases that naturally the expiry will be a bit further down the road.
Tze and team, can you share a little bit more about your -- the magic behind Rock Square 20% reversions? Was it just a case of it being severely under-rented in the past? Or did you do a lot of trade sector, rejiggings and all that? And then so for the remaining expiries for that mall, 14% of income rest of the year, do you expect the same kind of reversions?
I think it's a combination of both. I think we guided during the acquisition time, we do look at the rent roll. We were looking at the expiry profile, and you can recall we mentioned that between 2018 to 2020, almost 50% up for renewal. So actually we already see this potential cycle for us to extract, which is why since taking over, we have been focusing a lot on this front. I mentioned while balancing what we want to bring in, in terms of improving the trades and the brands. At the same time, we also know what some of these brands potentially should be paying relative to the kind of sales that they are already generating. We roughly have data points to guide us. I mean, we are happy and encouraged that the first 2 quarters, we have extracted 20%. I would not want to be overly committed to say that it will always be 20%. But I think we've guided that we should be aiming at double-digit for the whole year. And that's exactly on track, that's exactly on track. And I think sometimes, we do have to balance between rent and between the trade and the brand quality that we want. So I think let us manage that thing and I think it's also a function of each quarter which area is up for renewal. So rental reversion while is a good indicator for us, we have a few, but try not to always use it as stepping or as a projection for all. It may not be consistent all the time, yes, yes.
So can you also remind me what was your targeted stabilized year on costs when you acquired it? And are you on track to meet it or exceed it and by when?
I remember we saying, we entered at about the sub-4, right? And I think if you'll -- if you look at what Tier 1 as stabilized more should be trading at and we've guided at about 5%. So we said that within one cycle, we should be able to bring Rock Square from the sub-4 to the 5% level. So I think based on these 5 months performance, I would say that we are positively on track here, yes.
And sorry last question is looking at rental reversions and tenant sales, rental reversions have been strong and especially for bigger malls in -- say in Beijing, say, for Grand Canyon, where you mentioned there was weakness in sales, but rental reversions was still very strong. So based on what you're seeing now, based on your occupancy cost, do you expect this same kind of performance from the malls going forward?
In terms of occupancy cost, I think if you just look at the whole -- mall as a whole, we are still working within a quite narrow, narrow range. I think if you look at the Tier 1 assets, our occupancy cost is still around the 22% level plus/minus. While we look at the rental reversion cycle and the tenant sales, I think we will always be guided by around that. I don't think we will suddenly have a very significant outlier kind of mall that's sustainable. So within each category of trick-hat, we have always guided by the natural healthy occupancy cost will likely let. Obviously, within that trick-hat, if you look at where that brand is resided, whether they are a Level 1 prime or Level 4, sometimes there would be a range. But I think fair to say that I expect our Tier 1 malls at a 22% level to be able to hold that ground quite well.
I have a question on your distribution policy from capital. I noticed that you still did small amounts in the quarter. What is the objective? Is it to make sure that the DPU growth is still positive year-on-year? Or how do you -- how would you distribute capital in the future? And how much of a buffer do you have left?
Yes. I think if you look at the -- our divestment from Anzhen, we had a capital gain of SGD 37 million. The first time that we did a so-called capital distribution was the fourth quarter of 2017, we distributed $3.7 million. That's essentially to buffer the loss of Anzhen, while Rock Square proceeds have not been fully deployed and income has not come in, and we've already done our fundraising for that. So I think that sort of buffer and smooth out. If you look at the first quarter, Rock Square started contributing but not the full -- for the full quarter. So we actually paid out about $3 million. If you roll forward to the second quarter this year, we have the full Rock contribution, so I think you can look at it how we manage this is as the Rock Square's contribution in the portfolio ramps up, I think then the contribution from the top part should scale down over time. We want to pay steady distributions obviously, we would like to grow our distribution steadily over time. And I think we are exactly doing that, yes.
So how much is that?
27 -- yes, 29. We have 29. And so in terms of percentage terms, we still have about 78%. So we have a lot of reserve and to so-call buffer any income volatility in the REIT.
Just one question for me. Apart from Wangjing, do you anticipate any further changes in your tenant configurations in -- for remainder of 2018?
That will be part of our usual trade mix changes when leases expire. Generally, the trend is for us to compact some of these bigger space users that typically was signed, let's say, 5 to 8 years ago. I think the market has already evolved. I think we want to keep up with time to make sure that whichever tenant that takes place with us uses the space in a very productive manner. If you look at 10 over years ago, people are very -- is really committing big spaces. But now I think both the landlord and both the retailer themselves have become a bit more aware, and space productivity then becomes more important during our lease negotiations. So I think general direction is to compact the area. And release some of these area to inject newer content, newer offerings rather than to stay the same. I think the mall has to continue to bring in new flavor, new themes, new content, I think that's something that will continue to drive the appeal. So input for the big, big thing for Wangjing, I think we have also mentioned that we are trying to get the MRT basement connection done. And that's also one avenue for us. Once it's done, we can have the opportunity to reshape a little bit of the current lease line that will then be at the basement where the MRT connection tunnel comes in. So that will give us a good window for us to resell the build circulation and these things. So if that's successful, then that will be a good angle for us to recover potentially some space from the supermarket, which is currently on the basement. So that's something we are working as well. So that will be another similar [ catalyst ] what we have achieved for the department anchor store space. So I think this is something that we have in mind and we are working towards, yes.
So we don't anticipate any changes to our anchors as well, meaning...
Not material changes. If you look at where the anchors are today, I think essentially they are all the supermarts. I think we have just done 25% reduction of department store in Wangjing. I think the next, I mentioned if we can, we would like to address the supermart. And the rest of the malls currently, I think, not in the immediate term other than the kind of trade mix changes, for example, we allocate a little bit more to F&B, we downsize a little bit of the nonperforming fashion. I think these are within that kind of percentage terms that I don't think is very, very significant, yes.
On the e-commerce side, do you think -- has the peak -- do you think that it's peaked in terms of its growth? Or I mean, are people coming back to physical space? Or will people forever be e-commerce spaces?
No. I think e-commerce will continue to grow. I think the physical will also continue to grow, and both will coexist and evolve and grow together. I think this is probably the theme that we are observing on the ground in China. Obviously, the physical mall has to change. I think if you look back at 10 or 20 years ago, even before the so-called event of e-commerce being so pronounced today, the physical malls also need to change to anticipate what the industry is evolving in terms of, say, department store, say, supermarket, say, F&Bs, things are also evolving. So I think today, the physical side of things must continue to embrace all these new things as well. And certainly, there are certain traits that if their own business model do not make sense and they cannot compete, then we will not be partnering them in our physical mall. To substitute them, there will be new ideas, new concepts, new players in the market, and these are the some of the newer retail ideas that we want to partner them. So I think the whole market is such that it doesn't stay static, there'll be winners, there'll be losers. So I think the key for us as a landlord, we want to make sure that we are up there, the landlord choice. In order to do that, we must be seen in terms of hardware, in terms of software, in terms of management know-how, in terms of the ability to connect with all these retailers, how we manage the whole retail business, I think we must, first of all, be able to demonstrate ourselves to be at this level to engage. Second, to be part of this game, there'll be a little bit of tricks here and there on how we collaborate as partner. So I think on that front, I think if you look at us, CapitaLand group as a whole, I think we are very much aware of all these things. We want to be able to embrace all these new digital initiatives what it brings to us. And also to be actively [ caughting ] new business ideas. You see a lot of successful retailers, who have also reinvent themselves and continue to grow, both the online business as also the physical business. So I think there's enough room. And really back to, just now I mentioned, China is a domestic economy, the emphasis on the urbanization, on the consumption growth, on the income growth, on the spending growth. As their quality of life improves, as the kind of products and services available in the marketplace today, a lot of new brands are being created and originated from China today. In the past alone, new things are tried and tested in the Western world and then being transferred into the China world. But in today, I think you see a lot of China concepts that have also learned from the West and they have also given it their own local flavors spinoff. And they are also very successful. So I think this is a big market for us to really spend time to cultivate, to curate content. I think this is something that in order for the physical mall to succeed, to do well is something that you could doggedly do and have the conviction and passion to keep doing it. There's no stopping and I think there's no point to say that has this peaked in? It will evolve, yes and you will continuously keep evolving, yes. So I think for this quarter, I think, by and large, you can see that I think some of the hard work that is being put in over the last few quarters, you can see the reversions coming through. I think there's always a balance of this whole basket, there will be some that is on the positive reversion, there will be some in the negative. But overall, we are still managing the business, as at the mall, can be strengthened. We are putting in new points of attraction and appeal, and we continue to want to bring in the footfall and let them stick with us and we gain a bigger of their mindshare and wallet share. I think this is something that we hope to do. If some of the assets showing a bit of challenges, I think over time, we will like to exit them if it doesn't makes a lot of sense for us to continue to hold. At the same time, we want to focus a lot of our attention on making acquisitions such that CRCT can grow. And when CRCT can grow and we bring in more quality assets, I think some of these so-called more challenged assets we can then exit them in an easier manner, yes.
Any more questions from the ground?
Any update on the acquisition front?
We are always doing that. I think evaluating opportunities both also in-house. I think we are continue having conversations also with our sponsor site. I think you would know from their perspective, I think they have come up to say that they would like to target certain recycling program and certain divestment targets. So I think they've also reached a point. Some of the assets being held in the funds have also reached a matured state, and some of the funds are also nearing their end-of-life. So I think this is probably a good window leading in this discussion, and we definitely hope that sooner rather than later something can be structured such that it make sense for both ends, yes.
Any more questions? If there's no more question, we have come to the end of the results briefing. Thank you for your time. We wish you a good day ahead.
All right, thank you. And have a good Friday.