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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hi, everyone. Welcome to CapitaLand China Trust 3Q 2022 Business Update Call. I'm Nicole, IR for CLCT. Thank you for joining us today.
So a quick introduction of the management team before I begin. With me, I have Tze Wooi, CEO; Joanne, CFO and You Hong, Head of IPM. So over the next hour, we'll be having a short presentation before going on to our Q&A section. So just feel free to pop in any of our questions in the chat box. Otherwise, you could also raise up your questions during the end of the presentation by raising your hands and you're allowed to speak up then.
So I'd like to pass the time on to Tze Wooi to bring us through the presentation. Tze Wooi, please.
Yes. Thank you, Nicole. Good morning, everyone, and welcome to CLCT's Third Quarter 2022 business update. Let me just take you through the deck quickly and leave a bit of time for us to do more interactive Q&A.
I think if you look at this slide, I think luckily, this is a quarter where we see CLCT's diversified portfolio, demonstrating our income resilience while we proactively execute our asset strategies and positioning our business in a still volatile and operating environment as we know that China is still having -- going through that China COVID policy.
If you look at our portfolio today, we derived more than 30% of our revenue. And you look at 4 out of our top 10 customer groups actually now are from the more resilient new economy sectors. And across our portfolio, we continue to hold very steady occupancies above our catchment submarkets. And CLCT continues to be the largest China-focused REIT, delivering steady distributions and attractive yield for investors with China risk allocation.
If you look at the 9 months year-to-date, I think our portfolio revenue and NPI has grown 7% and 7.5%, respectively, contributed by the addition of the business parks and logistics which help to mitigate the relative retail portfolio's performance, which continue to be quite susceptible to a suboptimal operating environment. We're pleased to share that Wangjing AEI was completed on time towards the end of the quarter. And opened well into the October Golden Week holidays with very encouraging results. It recorded more than double the old anchor space rental revenue. So uplifting the overall portfolio rental reversion to a positive 4.9% for first time since the COVID actually landed on us in early 2020.
So this space, which was not contributing income would start contributing positive revenue uplift from the fourth quarter onwards. And we'll continue to build on the recovery momentum that we are seeing quarter-on-quarter that we observed generally across for our portfolio in terms of the traffic and sales. And over the new economy segment, the performance remained very steady and resilient where we see broad-based average rental improving on the back of good occupier demand from the growth sectors like electronics, engineering, the ICT, the biomedical and a positive rental reversion of 5.6% recorded year-to-date.
If you look at what we've been focusing on, I think, since 2021, despite the COVID environment, we've been very disciplined in executing the asset strategies to extract value from our AEI programs. And we see Rock Square contributing strong growth year-to-date 2022 versus 2021 after its AEI completion. And now we have another dominant asset in Yuhuating who will start contributing that strong uplift in fourth quarter onwards. And we are embarking next on Yuhuating through the Walmart anchor space recovery, where we expect to see good rental growth in the next 3 to 6 months after the works are done progressively in phases.
So all these active steps will help to strengthen our mall's positioning in order to connect better with the catchment shoppers by continuously refreshing the kind of offerings and to be able to capture the consumer spending as the ground situation improved. So this is going to be a core tenet of our asset management focus and will be applied across the portfolio in stages.
At the capital management front, I mean, if you look at where CLCT is, we continue to manage our balance sheet prudently, holding the cost of debt and the interest cover ratios at healthy levels. And we successfully completed all the refinancing views in 2022, ahead of time, also extending our debt maturity profile. And we apply our hedging policies consistently on the interest rate front where more than 70% is fixed and also at the FX front to mitigate the material market volatility. Our debt maturity profile is well staggered, and we have successfully secured the refinancing having different facilities and options on hand from diversifying our sources and we entered the fourth quarter and 2023 with no refinancing concerns.
If you look at our portfolio tenancy today, in terms of the overall exposure and quality, I would say that it has improved and are more well balanced, and we continue to provide the overall diversification benefits. There's no concentration to -- sorry, let me just pull out the last slide. Yes, this is the slide I was referring to. So there's no concentration to any specific customer groups where our largest being like just over 2%. So over the course of time, if you look at how we've been actively remixing our tenants, we are having less direct exposure to those more dated formats and the trade categories that are -- we're losing a bit of consumer spending in today's new retail preferences, for example, the dependent store and fashion. So you can see us improving the overall mix and also the kind of quality and also the exposure that we are deriving in our gross rental income.
And if you look at where the China's economic direction is heading, I think domestic consumption and also stressing more on the higher value and technology innovation side, our portfolio is actually very well shaped to be able to capture this sector growth opportunities. I think these are just consistently some of the numbers that we are presenting on our will.
And if you look at Page 17, for our retail portfolio, I think if you look at how things are going on year-to-date, I think I would say that overall, our portfolio has been impacted more in terms of the citywide and the community locked down in terms of the fiscal number of days. So if you look at second quarter, I think the last review, Beijing was fairly heat. And in the third quarter, our presence in Guangzhou, Chengdu, Harbin, and Inner Mongolia are the main ones. But that's it, if you look at where things are trending in third quarter, we actually see good recovery, especially coming off our Beijing portfolio, now rebounding fast from the second quarter, both in terms of the traffic and in terms of the sales.
So I think as we approach September and October, again, I think cities like Inner Mongolia, Harbin, and Guangzhou continue to be under very tight restrictive measures. So given the current policies in China. I would think that the retail business would be still susceptible to this leading position of these tightening measures. So what we can do at an operational level is with experience, we get much better prepared with the relevant SOP on our own and also working with the local authorities to apply for reopening when things are more ready.
So against this backdrop, I think if you look at our retail portfolio occupancy held well. And although I have to say in third quarter, I mean, we do see a little bit of missing activities and momentum being slowed down each time that city or that submarket catchment faces a lockdowns as retailers expansion more and the confidence would be impacted and some of the decision-making at times would be slowed down.
So overall, I would say that in the pre-COVID month, our portfolio typically frictional vacancies we are seeing about 2%, 3%. But with the COVID now injects a little bit more volatility, and we are seeing maybe creeping up slightly to that 3%, 4% level.
Over at our lease expiry profile, I would say that overall, things are constant as a portfolio. With Nuohemule, there will be a couple of more leases due in the fourth quarter that we are reviewing through. And some of the strategies could be to allow a little bit of short-term renewals to tight up a little bit of that window period as we look at longer-term renewals -- to be put in place longer-term renewables. This is the well -- quite constant.
And just a little bit of more color, I think, for one thing, we've been preparing this AEI, and happy to share that in terms of the recovery, we have now created more than 7,000 square meters or something that is new. Something that is more in trend and creating more experiential space for our consumers. And alongside that, we have injected more than 17 new concept stores more than 60% new to the banking community. And I think you can see that in the first week of Golden holidays, we see crowd coming back.
And overall, this space is going to generate improved sales and the rent eversion is going to help forward uplift Yuhuating's performance in the quarter ahead. And these are some of the segments that we are targeting in terms of the family-friendly and also to extract closer with the catchment communities.
Some other examples over here on what we do to connect with our shoppers at Yuhuating also Xizhimen and Rock Square. And also happy to say that 2 of our malls have already gotten the green certificate, and this is going to be a journey for the rest as we broke out towards the 2030 kind of big target that we have in place and also to continuously connect that with our community in the kind of regions and space that we are in.
Moving quickly to the new economy side, I think the occupancy have held steady. I think with the exception of Ascendas Innovation Towers, we see a like a slight drop as we closed the quarter, but things are coming back in the fourth quarter, we should be able to review back the same occupancy by the end of the year. And across the assets, I would say that we continue to be leading this sub catchment, able to work closely with our local government partners to create the kind of tenant profile and the space demand that we would like to position our parks.
In terms of the lease expiry, it's quite steady as well in those overall about that 1.7 years. And I think we are also spending quite a lot of time in terms of the softer part of the management, in terms of intermingling some of the tenant community and the business park community in our space. Very quickly, over at the logistics side, I think this portfolio is going to be stable as well with not much of rent renewals coming through. Occupancy has held steady during the period of our acquisition.
So to sum up. I think what we have been doing in terms of where our focus is, is really wrapping around the core strategies of creating and locking and extracting. And I think in the last few quarters and a slight step I have shared with you. We've continuously to build that portfolio quality through increasing exposure to new revenue streams diversified into new sectors into new cities. And we continue to also extract value through our organic and through our AEI programs, and we look for opportunities to also unlock value, especially for the more mature assets and noncore to our holdings and help us to recycle and also to seek out the new -- more new accretive acquisitions in the opportunity space.
So if you look at where we are in terms of our road map, I think we have started with retail and wanting to build a more sector diversified. The large thinking is to make it more like a quite a broad mix of [ 433 ], capturing the kind of economy direction that the Chinese government is promoting. So I think the logistics and the new economy, the business park is something that we'll continue to focus. In the near term, we'll be looking at assets that will continuously improve our portfolio quality. In terms of the tenant exposure and the quality of the income, we'll continue to look at the cities that we already have presence, especially together with our sponsor, to be able for us to extract the synergies on the ground and having that domain expertise that's closer to the market.
I think overall, we continue to align our portfolio to where we feel that the local economy is going to be directionally moving and also trying to capture as much of the quality support sectors into our portfolio. And we'll do that via both our sponsors pipeline and also looking at potential third-party opportunities. As we look at that, I think organically, there are a couple of things that I mentioned earlier, the AEIs have been programmed such that we're always working on a new asset as the previous ones start the income generating. So that overall, we always had the uplift from previous AEI program to sort of buffer a little bit of that downtime as we program something else in next 3 to 6 months, now what we're focusing on will be on the new parking to recover space in the Level 2 and Level 3. And I think we can look forward to 2023 in the first quarter the completion and being able to uplift this space and injecting again new offerings.
I think this mall has been around the catchment for more than 15 years. I think it's always good to have something new to be able to connect the shoppers of today. So I think I'll just sum up by saying that we are well positioned in terms of our core portfolio shift. I think we have added the retail pillar, the business park pillar and logistic pillar. And I think all these are well aligned. I think if you look at where the Chinese government's main focus would be I think the economic part will take center stage. And I think they are more focusing on quality growth. So I think our portfolio and our business are well aligned with the kind of policy directions. And what we are doing here is actively managing our capital side of things to ensure the interest rates and FX rates are well managed and we are able to do all this early planning such that we're able to capture some of these mitigants well.
And on the business side, I think we are always proactive in terms of how we asset manage the different assets executing the strategies that we have identified. And through asset recycling, we'll continue to enhance the quality of our holdings in the mall, the parks and the logistics side and through asset exciting also to let us seek out more new [ operated ] acquisition opportunities.
So I think with that, I'll just open up the floor for more interactive Q&A. Thank you.
Thank you, Tze Wooi. I think we will now proceed to the Q&A segment, I see a couple of hands that have been raised. So I'd like to pass the time on to Terence first for the first question.
Yes, just 2 sets of questions from me. I wanted to ask firstly on revenue NPI on a Q-on-Q on year-on-year basis, revenue was up, but NPI is down. Could you maybe share on other reasons for this? And the second question is I noticed occupancy saw a dip Q-on-Q. Could you share some of the more impacted malls, I think Grand Canyon and one more, yes, just maybe share some competencies too.
Maybe let me just refer you to the occupancy slide that here for us to -- I think if you look across the occupancy, I would say the dominant malls that we have gone through are all holding well. I mean if you look at where things are, in Xizhimen, the Rock Square look at where Xuefu, look at where Yuhuating, I think these are all solid dominant malls in our portfolio in terms of occupancy, I think they are trending well. In the case of Yuhuating, we have added in all the post-AEI NLA into our calculation. There are still a couple of, I would say, close to about 1% of space that we have created more for tenants in terms of like for their storage and warehouses. So these are still being in the midst of being leased up. So that explains roughly that 1%.
If you come back that additional NLA that we created is more or less on par in terms of where we are. If you look at the main asset, I would say, that has seen a fall will probably be the Chengdu. I mentioned Chengdu in the third quarter. It has gone through quite a few intermittent community lockdown and city lockdown. So that has affected a little bit of our leasing momentum. I think there were a couple of leases that were meant to be secured. But due to that, in terms of decision-making, it has sort of been deferred or commitment from some of the retailers that we have identified as sort of like wanting to pause a little bit and see how things go. So some of these at operational level have resulted in Xinnan in terms of replacing some of this tenancy trend not being able to pick up in time. Xinnan is a mall that I mentioned earlier that it has quite a lot of the fast fashion tendency exposure in the past. So we are going through that cycle of wanting to reposition. So there's going to be a little bit of that churn that we expect from Xinnan, and that explains the occupancy drop that we can see here.
The other more that in terms of occupancy, I would say, is [ Xuefu ] in Shanghai. I think that's also another key mall that if you look at where things are in terms of Shanghai lockdown, there's a lot of -- in terms of retailer confidence and expansion plans has been held back that's more from a market point of view. And the other factor is also because of this mall, we are only left with close to about a year in terms of the underlying master lease. So we are also taking active review options on seeing whether we want to continue or we may want to look at a little of stage winding down.
So I think these are some of the more fluent things that we are deliberating. So I think these are the 2 main malls, I would say within our portfolio that you see a little bit of that occupancy running down. The rest of them, if you look at where I mentioned in the re-volatile COVID environment, I think a frictional vacancy up at 3%, 4%. I think it's something that in this corporate environment, we need to be a bit more circumspect in terms of that replacement sometimes will take a little bit longer, especially the key decision makers at times are not able to move freely and go down to the site and I think this do take up a little bit of more time.
On the NPI, I would say if you look through our third quarter respective assets. One thing for obvious reason. I mean, if you just look at the third quarter this year, a large part of the AEI space was not contributing any NPI because it's going through that program, but you will start to uplift itself and kick in, in the fourth quarter of this year. So year-on-year, you will see a little bit of that effect happening. The other NPI that is, obviously, year-on-year, it has not reflected as well.
As I mentioned, in the case of Qibao and the case of Xinnan. So a little bit more of the provision for some of these rent relief and also some of these doubtful debts that we are handling. But that said, if you look through our core portfolio, these are malls that don't have big weighting overall. The big ones that I mentioned like Xizhimen, like Rock Square, like Yuhuating, like Xuefu, I think these are the ones that are still contributing on a stable base.
On operating side, if you look at how seasonally adjusted for those kind of operating expenses, I would say third quarter, typically, it's one where we have a little bit more of utilities usage because of the seasonal feet. And this third quarter, we do have a few malls undergoing quite a lot of in hot weather. So I think Chengdu, Guangzhou, Yuhuating these are going through a little utilities. Other expenses, is it a one-off, I would say, is in terms of marketing. I think in Guangzhou, straight off from the COVID lockdown, I think we pushed a little bit more in terms of the marketing spend. And I think in Grand Canyon and also in Yuhuating.
So I think these are some of the color that I would like to just address on why you look at the numbers as a portfolio, that's a little bit of mix and a little bit of [ knotting ] between year-on-year movement.
And maybe just maybe in terms of forward looking a little bit more the kind of NPI margins that we are seeing for third quarter is this probably going to be reflective of second half? And should we expect improvement for next year?
I think if you were to just average it out, I would say third quarter is probably the one that we are impacted a little bit more. A couple of things. As I mentioned, in the third quarter, we actually suffered quite a few of the lockdown days in terms of the normal operating mall. They are still selling malls, with certain fixed cost that we are running and some of the fixed costs are in relation to, let's say, property tax, for example. So although the malls are not operating at a normal mode, but there are certain fixed costs that continue to run.
So -- but if you were to just average it out over the second half, I would say -- I would expect the quarter's margin probably to be the lower point compared as a 2 half relative with the quarter.
Thank you, Terence. I'd like to pass the time on to Geraldine, please.
So I have a couple of questions. So the first one will be on the income retention in first half, you retained about SGD 3.6 million. So your thoughts are this, whether you would like to distribute it in second half?
Yes. Good question, but I think I will review this in totality as we close the fourth quarter, since we know that we grew semiannual distributions. So I think let us close the second half books and looking at how things are on the ground. I think when we were distributing our 1 half results or saying that the lockdown in several cities are just coming off so as close the books. I think it's more prudent that we want to retain a little bit to see how second half goes. So I think we'll consistently review through that same thinking. We look at the overall 2 half months, the results are close, and we'll decide whether we are in the position to be leased.
If you recall, in 2020, I think that's what we did exactly as well. I think in the second half of 2020, we did release because after closing the second half, I think things are more stable and what we have helped can be released to unitholders, and that's a position that it will take.
Okay. Got it. So my second question will be on debt. So I previously mentioned you look to increase the onshore portion to 30%. So is there any chance that you're able to push towards these in FY '23 and FY '24 renewals? And how do these reflect on your average cost of debt?
Yes. It's a good question. So this is going to be a continuous exercise that we review through as we look at how you want to balance our overall gearing dynamically. There's always a little bit of constraints on the onshore because of the usage of proceeds and the purpose. So I think it's always easier for us to rebalance some of these current borrowings structure when we do a bit of portfolio reconstitution, meaning that when we do a bit of divestment, and we do a lot of acquisitions. So that can be factored in as we structure that deal.
But on an ongoing basis, just organically, it's harder for us to gear onshore because that proceeds may not be freely available for us to repatriate out and to pay down offshore. So we'll be watching the onshore and offshore structure closely. And I think this is something that we've been doing all this well.
Onshore, the good thing is that the LPR, as you all know, are on the easing side of things. And I think we stand to benefit from the onshore side. Offshore side, we continue to have well-staggered maturity. So that will also help to mitigate the amount that we need to refinance each year and the amount of interest exposure that we are exposing as we refinance. So I think it is something that we have to watch very dynamically.
I would say, overall, right now, as a cost of debt as a basket, the offshore because of our fixing, we are still enjoying the advantage '22 to onshore. So a lot depends on how the interest rate, base rate moves from now to next year, we will be looking at opportunities to really optimize that whole mix and the whole cost as we reconstitute some of the portfolio when opportunities present themselves.
Okay. If I could just ask one more question on your Yuhuating AEI. So it looks very positive. Congrats on the completion. So on the -- from my bit of envelope calculation, it says that your passing rent has moved quite significantly. So calculation at about double-digit growth in your passing rent post this AEI. So is that number accurate?
Yes. I mean if you look at the AEI area that we took back from our anchor, so the whole area that was previously occupied by the anchor. And now that we have cleaned it up and rezone it and release it out to the special team, what we are seeing is now the whole zone areas revenue has more than doubled the old anchor space.
Okay. Thank you, Geraldine. I'd like to pass the time on to Vijay, please.
I have a couple of questions. My first question is on the rent reversions. I think especially on the retail rent reversions. It seems quite positive this quarter at 2.9%. And if I back work, it based on your past stack, it's about minus 3%. Third quarter seems to be quite strong in double-digit kind of numbers. Maybe what drove this reversion? Was this a broad-based? Or -- I mean, specifies just particularly -- leases in particular malls. And is this a broader trend of consumption returning back in China? Because I see your sales and traffic that seems to have come up also and GDP seems to be positive. Is this some sign of broader consumption -- I mean, resumption in the China market?
Yes. I think overall, I would say that the sentiment for retailers and the consumer sentiments are still very impacted by the COVID Zero and the lockdown. So I think that is, first and foremost, that's the market that we are in. The strong rental reversion that we recorded in third quarter, a large part was due to the AEI effect from the Yuhuating. So this was a clear example of what we have done to a mature mall in terms of the mature space, we took back earlier, go through the AEI program about 6 to 9 months for this year. Lease it up and now the overall rental has been updated by more than double the previous anchor space. So this quarter or rather this just positive 4.9%, a large part is actually attributed to Yuhuating since this AEI uplifting.
Across our assets, I would say there are a couple of malls like Yuhuating, the more dominant one like Xizhimen and Xuefu, this buy and large, because of what we have already done in the last 1 or 2 years in terms of that active tenant mix, I think these are trending well in terms of reversions, they're either flat to a slight positive. I think Rock Square continued to be strong as well. And with the fact that Yuhuating has a very strong pool that resulted in the whole of our retail portfolio registering that some of the malls that are seeing more challenge I mentioned earlier in terms of Qibao reasons I mentioned, Xinnan, as we go through a lot of that tenancy churning because we are actively looking at what that space, can we remix because a lot of the fast fashion are probably no longer so strong as both of sells, brand pool and also it's contributing to the mall.
So it's going through that cycle. So these are the 2 malls, I would say in terms of rental reversion are still on the negative side of things. And Grand Canyon is probably another one that is in the category where I say it's less dominant because of this catchment, this competitive landscape and what we're trying to do in terms of repositioning and retenant mix. So these are some of the malls that are going through the negative cycle, but there are also certain malls that have gone ahead and done well.
I think overall, I think we're happy that the AEI has really strengthened the retail rental versions as a portfolio. But I think it is very difficult to generalize it across because I think each city, each asset, each quarter, each year, it all depends on the kind of lease renewal profile, the opportunities that we can take back space, the big ones and also the kind of tenant mix that we want to strengthen them more. So it's many factors coming together. I think we're just happy that with this AEI success, our retail portfolio is registering the positive for the first time since COVID.
Okay. Okay. If I -- if my understanding is correct. So if you exclude this AEI effect, would you still be in a negative rent reversion for the 9 months, would that be the right to say that?
That's correct. I think if you remove the AEI, I think overall, it's still trending at a low single-digit negative, yes.
Okay, okay. And in terms of lockdowns, so we just want to understand a bit more clearly. When China means locked down at this point of time, does your malls are still closed in the cities? Or is it allowed to operate with minimal departmental stores or necessity shopping at this point of time? And is there some change in SOPs in terms of the lockdown days reducing from week or 2 weeks before to 2 days, 3 days kind of thing?
Yes, I think you have actually touched on the range of possibility that we are seeing. I think it all depends, we take the cue from the local government for serious cases, they may just ask you to lockdown the whole mall, keeping only the essentials. These essentials are typically supermarket or services. Whether it is for 7 days, 10, 2 weeks, I think -- I have to say that as an operator, we are not in control of that, but it's more so taking the cue from the government in terms of them able to stand the kind of COVID cases spike and then reaching a level where they are comfortable to allow the mall to reoperate.
And within the mall itself, there are always different stages of being able to go back to normal trading patterns. F&B, typically, they can allow you to do delivery takeaway. They will allow you to do in dining progressively upping the percentage at times. Trade categories like leisure and entertainment, these are normally under more strict control, and they are probably the last to be able to put back. So across our malls, across the cities, it's very dependent on the policy locally. And it all depends also stage of how they categorize the risk factor for the COVID. They have different risk category. So if you are under the high risk, probably under a more tightened kind of thing. If you drop to medium, then certain things can be put back. If you drop too low, then more things can be put back.
So over the last 2 to 3 years, I think these are the full range of possibilities that we stand operation ready to respond when time comes. So this is why I say the retail business, although we are very diversified today, it also depends on how many times this intimately hit you. So all this actually will eat into some of the retail performance and the steps that we are seeing. Then you see year-to-date, we are still reflecting a drop relative to last year. But what is encouraging is, I mean, if you look through -- I think the outside of that things should improve as we approach the end of the year as we approach next year, things should normalize. Things should be more ready to open up. I think the economy needs to take center stage.
I think these are all the signals that we are watching very closely. And what we can do at our own part is to make sure that each mall, we'll go through our own internal discipline to really have strategies to execute at different phases in time, different assets go through different cycle point and AEI coming in, what are the areas they want to address so that when things improve on the ground when sentiments come back, we are able to better capture the consumer spend.
So I think this is what the focus of the team have been, I would say, year-to-date, in trying to ensure that the quality of the tenants is continually being strengthened.
Over to you, [ Joel ].
I just had a few questions. The first one is following up on Vijay question on lockdowns. Has any rent rebates been provided for the most recent quarter?
Yes, I think this one is a continuous, I would say, it's the continuous review process that lots -- and tenants will have to go through all the time. I would just say that for this year, as we closed the books for September, we are probably setting aside about 0.5 months of our average retail portfolios revenue as that reserve for us to negotiate with the tenants. All these are not cast in stone yet. I think it depends on the bargaining power. It depends on the lease renewals that we are negotiating.
So I think this is just something that is still in progress. But you're right. I think in the current climate, if the mall cannot create -- the retailers cannot create. I think it's only reasonable to expect a little bit of that, a combination between the landlord and the tenant to share out some of this risk how we share out, I think, throughout the last 2 or 3 years, we have planned many things. We can wave a little bit of rent during that period. We can add on a little bit of marketing support for them. We can wait a little bit of that fixed rental and go through just on the sales turnover rent for a certain period of time.
So there's a lot of all this, I would say flexibility arrangement between the landlord and the tenants as we look through the lease and looking at forward renewals. So I think these are some of the possibilities and strategies that we are executing. But I think year-to-date, we are setting stamp of 0.5 months. I can let us take a look at that amount as we close the year. It all depends on the COVID situation in China and to what extent and how the retailers themselves are being impacted. And what are some of the active measures that we and themselves are taking to sort of reduce some of this upfront rent reduction on our part that we can support.
Okay. My next question is regarding -- because there's some recent news on China power crunch, electricity rationing and like basically a restriction on the mall operating hours. I was just wondering whether this affected your company's assets and tenants?
Yes. I think those are news that in fact is definitely is out there in terms of -- I think there will be certain pockets of time where they -- as a policy, they will want the business to reduce some of these electricity usage. So we stand ready, for example, to tweak a little bit of the air condition at a certain period of time and certain lighting. So I think these are something that I would say, depending on the cities that you are in, and that is the policy direction, we stand ready to support.
But I wouldn't generalize it as trend that is consistent every day. I think the electricity shot was probably in the second quarter of this year, if I recall currently where there was a lot of heat waste. There was a lot water levels bringing low. So I think there are certain cities where impacted had been more, for example, Changsha and Chengdu. For those cities that we are in, I would say that, that's not a very big hard impacting our day-to-day business. But that said, of course, utilities has risen a little bit, right? I mean, if you look at the year-on-year utilities have gone up, I would say, to the tune of about 10% to 15% on average across our [ most ].
Yes. Just to maybe add on, this is You Hong. I think the -- this summer was a bit hot and report that you have seen probably is also in the Changsha province where hydropower was affected a bit more. So I think in Chengdu, I think we probably observed a bit more. And then we -- our malls was standing ready to actually receiving government orders. But luckily, I think the mall was not affected. I think we did not have to shorten the operation for the electricities shortages.
Our logistics property had a bit of -- we needed to put in the diesel generator on for a short period of time. But I think it lasted not longer than 10 days. So I think that's generally okay.
Okay. My last question is regarding the -- like the property sector in China. I think there's a downturn there. Are you seeing more opportunistic acquisitions perhaps in the third-party space?
I think this is definitely something that we are watching the space closely on how things develop. I think with the tightening that you mentioned, I think it will set a lot of people thinking -- I think people with strong holding power with a strong balance sheet, having strong financing success. These are people who are able to withstand a little bit more of this short-term shocks or volatility. For people who are not able to. I think there are chances that they are more willing to do some asset sales.
So I think this is going to be a space that we are definitely looking across. We see this across all the different asset classes. But I think the discipline that we have is it's not something that because it's cheap or the value is something that compared to what they last ask has come down, means they're suitable for us. So I think we wanted to be selective in how we look at and how we build up the resilience and quality of our portfolio shape. And I mentioned that the strategy is really to do a bit of recycling ourselves to be able to whole very dominant assets that have a lot of upside to us in terms of our active management doing AEIs. We can continue to stay very relevant and be able to be the top few in the submarket catchment.
So I think these are some of the things that we are already doing. As we look at new acquisitions, I think that's something that we must feel very strongly about that. Whatever acquisition come in is going to give me that strengthening attribute and being able to enlarge my share of the submarkets that I want to focus in. So I think this is something that we constantly review through. I think in the new economy space, I think if you look at the business part, it's increasingly being watched and is increasingly being in good demand. I think that's where I though that our early movement advantage in this space will help us enjoy a little bit of the capital appreciation and the cap rate compression, together with our sponsor, I think we are also looking at both the early stage and also the income provisioning stage.
So I think for us, we are reviewing through the opportunities that may present themselves together with our sponsor. So I think we feel that in the next 6 to 12 months, there will be a bit more due flows. More interesting due flows, I would say. I think we have to stay disciplined to make sure that we are able to also do a bit of our own asset recycling to give us the financial capacity to seek out these acquisitions that will strengthen over portfolio.
Can we've David, please?
Related question on asset recycling, is it safe to say that making a large acquisition in this market and where your share price is, that's not going to happen. So during this period, you will probably look to sell some of your noncore retail assets and ideally recycle that into some new economy assets. But I sort of get the feeling that's easier said than done. I mean, how easy is it to even do something like that? Because you have to stay disciplined. And as long as there are lockdowns, you might actually not see a restoration and deal flow. So how are you managing this process. And is your compensation tied to how much deals you could get for CLCT, I mean, how would you feel about it?
Yes. I mean, David, these are all very good questions. And I think it's always not easy, it has never been easy, actually. It's not to say that this is the period of time that it's only now that it's not easy. I think we've to stay discipline like what we mentioned. There are a couple of I would say, more mature holdings in our portfolio. We always do that buy wholesale analysis each year to see what is a better financial outcome for us. And I think we'll continue to stay discipline on that. The good thing is we have very strong local teams who are able to step up some of these potential opportunities.
If you look at some of the, I would say, exits that we have done in the last couple of years, if you see -- recall, we exited like [indiscernible], we exited like Zhengzhou, we exited Xi'an and we also exited Wuhan Yangluo. A couple of them actually done even in the midst of a COVID situation where it's not easy for us to travel. But because we really have very strong local teams who are able to understand -- at time -- sometimes you just need that local ability to seek out the potential opportunity for us.
And I think if you look at where opportunities lie now, I would say, more so from onshore potential partners or potential people who have a need for that real estate for their own business use for a bigger consideration that they want to take to the local government because of their own other businesses. So I think these are the channels that will be definitely focusing on to seek out opportunities for ourselves as we think about asset recycling.
Over and above that, I think as a group, I think we are not just doing it sometimes on our own. I think we have a larger platform of sponsors that are able to reach out to potential business partners or opportunities. And I think we are able to leverage some of that potential opportunities together. So I think these are some of the active steps that will be -- we're going through to see how best to monetize some of our asset holdings. So that gives us more financial flexibility and capacity to do that reconstitution that we want to. On the part where remuneration, I think we are always working for the benefit of unitholders. I think that is something that the track record, and I think that's something that we're very clear minded on. We don't do things because of certain KPIs. Of course, we start the year with a certain plan, but it is not the right market, if the conditions are not able to facilitate that. I think we are reasonably been doing that review and will not do something that I think instead of being rewarded, we will be on the other side, not being rewarded properly by the market. I think that is the philosophy that we are working at. David?
That's perfectly clear.
Do you have any last question? Vijay?
So I have just 2 follow-up questions. Maybe my first question is on the business park segment. We do see that the return to office or physical occupancy and business parks in Singapore is quite low, especially on the communication segments, et cetera. How is it in China in terms of your actual occupancy of your assets in terms of people coming back? And has there been any change in terms of downsizing of some business park tenants because of this trend?
And adding on to that, if I look at Singapore, Hangzhou, Tech Park 1 -- Science Park Tech 1 -- Science Park 1, the occupancy seems to have been consistently coming down compared to Phase 2. Is this because of specific tenants or something?
Yes. On the issue on Hangzhou Phase 1, I think the position of the park has always been more oriented towards the e-commerce space. So I think in the course of the last 12 over months, I would say that this space have gone through a little bit more volatile period, and there's a little bit of ins and ups. There are certain e-commerce that have expanded very quickly, small enterprises. Some of these have probably felt that under the current climate, their business model or how they look at some of the ongoing things may change. So we do see a little bit of more movement in that space. So we are also going through a little bit of that leasing review on whether or not we want to lease up to more of the small entities or do we want to lease it out to a bigger entity, for example.
So I think if you look through at Hangzhou I, that is essentially the e-commerce space that's going through a little bit of more volatile period as we do the leasing turnovers. For the rest of the park, I would say that most of them have already worked in the park. I think China is such that the practice of working from home aside from the COVID measures where they should be [indiscernible] and other than that, people have been moving back to the park at very high occupancy. And if you look at the park occupiers. They are also typically either in those RMBs or industrial manufacturing. So I think these are nature of occupiers that we will need to decide at the park itself for them to be a bit more relevant.
So I think these are some of the trends that we are seeing at the park. You mentioned that there's a bit of shift. Of course, we do see that now different corporates are going through a bit of tightening phase. So I think the parks, especially to those parks that are resided very well located and near to the traditional centers that might be able to see a bit of spillover flows that we hope to capture especially in those R&D space mix.
Okay. Just if I may squeeze one last question. I think considering the very challenging real estate environment, especially on the financing portion in real estate in China, I would expect the supply pipeline to come down quite drastically and turn at some point of time, I mean, especially the new supply, which is on the market. Are you seeing this trend in terms of the new retail supply, office supply going forward, coming down quite drastically compared to the past? And do you think that would help you in terms of when demand comes off quite strongly in say, when China opens?
Yes, I think these are very good questions. I think if you look at where our footprint is in terms of the cities. We have enjoyed a little bit of the early mover advantage. You can talk about retail, our presence for Beijing assets. They are typically around the second, third, fourth range.
In terms of supply control, you're right in the sense that the government has already publicly come up to be a bit more watchful I think that very fast expansion, supply phase would probably be reviewed. In fact, it's already been reviewed and any of those new supply coming out artistically in new catchments that's further out from the fifth range to the sixth range. So where we are, let's say, within the 2, 3, fourth range, there are not much of new supply in that zone. So I think because of that planning, we already are seeing through some of these new retail supply. They are only add new, I would say, suburban catchment that they are trying to do. And you know infrastructure, they have been building up very good train stations, to bring people further away from the city center for living, but able to commute efficiently.
So I think these are already things that I would say, not just overnight now, but it has already been in motion for a few years already. So I do see, again, with the real estate tightening, I think people will be a bit more circumspect on growth reviews. And I think China is also moving towards more quality, especially for those high Tier 1 cities, they are also moving towards the quality side of things. So I think overall, these are going to be policies that are helping to control the supply side.
Thank you, Vijay. Qianqiao, can I pass the time on to you, please?
I have just one quick question on divestments. Given the market now in China, where some of the clearing price might not be reflective of market fundamentals. It also doesn't make sense to divest, right? Because you would actually -- you might get a very lousy price, and that doesn't suite very well about the rest of the portfolio?
That's right. That's right. So I think it is not a very one-dimensional thing when we say that we are seeking opportunities to divest. But I think the good thing is as we look at our valuations. If you look through our valuation on a per square meter basis, I think I would say we have not been overly aggressive. And therefore, for those assets that we want to divest. I mean we will not want to divest with or -- that's definitely not our guiding principle. But because of where our valuations are held, I don't think we are suffering from some of the examples that you may be seeing in the market. I think I've seen people asking for much higher in the past, now they have shift it down, shift the price down.
But we have always been disciplined in how we appraise our value. So I don't think we're in the same basket. You're right. I think we are not desperate. We only want to seek out opportunistically, where we can monetize and recycle the proceeds to better use and better value.
And any sense of [indiscernible] spread in the market right now?
Yeah, it's very -- that's specific. It is very city-centric as well depending on the attributes of the asset. It's a tough question to just address very generally, but I would say easily between asking and what the buyer side are at least about 10%.
Thank you, Qianqiao. Do we have any last questions? Okay. And then we'll just proceed to end briefing here, but feel free to reach out to me if you have any further questions. So before we go, Tze Wooi, could you give us last closing remark.
No, I think I've covered quite a lot. I think what we are doing in terms of sales cities really to reconstitute and also to keep focusing on what we started to do. I think we will continue to execute the strategies that we want. The market is difficult right now. I think all of the more that discipline is important. The skill set is important. I think the domain knowledge on the ground is important, how we manage our financials, capital management on the REIT side are important.
I think if you look at generally, we are still believers that the China market on a long-term basis, the fundamentals and where we are shaping. These are definitely okay and generally moving in the right direction. As all investors will be keen to look out for is the market valuations. And I think for people who are able to take a slightly longer term in China, able to look at valuations across a multiyear period. I think there are opportunities to really look at us. And I think from a sponsor group from ourselves, I think we'll continue to execute the strategies as concrete to strengthen the portfolio and also to be able to consistently be with steady distributions to the unitholders.
Thank you all for joining us today, and have a good lunch. Thank you.
Thank you all.