City Developments Ltd

SGX:C09

Earnings Call Transcript 2018-Q2

[Belinda Lee, executive]

Good morning, ladies and gentlemen, friends from the media, analysts, bankers and fellow CDL colleagues. My name is Belinda and I'm the Head of Investor Relations and Corporate Communications at CDL. On behalf of the CDL management and my colleagues, we warmly welcome you to CDL's briefing on its unaudited financial results for second quarter and half year ended 30th June, 2018.

I would like to take this opportunity to welcome those who have joined us on the live webcast. On your seats, as you came in this morning, you would have noticed a folder containing several documents, which had been released to the SGX this morning. It includes: firstly, a copy of the detailed financial statement; secondly, a press release summarizing the key highlights of our performance; and thirdly, a deck of presentation materials, which we will be bringing you and walking you through in a very short while. For all our guests joining us on the live webcast, you would be able to download these documents, which are also available on the CDL website.

I would like to introduce you to the CDL management panel. In the center, we have Mr. Kwek Leng Beng, our Executive Chairman; on his right, Mr. Sherman Kwek, our Group Chief Executive Officer and on our Chairman's left is Mr. Chia Ngiang Hong, our Group General Manager and next Mr. Chia, Mr. Kwek Eik Sheng, our Group strategy officer. Nearer to Mr. Sherman Kwek, next to only lady on the table, Ms. Yiong Yim Ming, our Group Chief Financial Officer and next to Ms. Yiong is Mr. Frank Khoo, our Group Investment Officer.

The format of today's briefing will be in 2 parts. Our management team will start off with a presentation of some of the key highlights of our performance, followed later by a Q&A opportunity with the panelists.

Without further ado, I would like to invite Mr. Sherman Kwek, CDL Group CEO, to kick start the presentation. Mr. Kwek, please?

[Eik Tse Kwek, executive]

Thank you, Belinda. Good morning, everyone. Thanks for coming to our analyst briefing and results presentation. I'm sure many of you just came over from another very big company. So I hope you enjoyed their session. Today, we actually have a -- kept our deck very compressed, so we will try to move through this very quickly. I think we should be done in about 30 minutes or so. So I will do a general overview and also cover some of our key strategic initiatives. After that I'll pass it on to Yim Ming who'll do the financial highlights and then, of course, I'll give Mr. Chia, who will do the Singapore operations, Frank will cover international ops and fund management, while Eik Sheng will round off with the hospitality and innovation.

Okay, so general overview. As you can see from the results that we've announced. We've actually had a very good half year and our sales, in Singapore, have actually achieved 651 units, about SGD 1.3 billion. So I think we are very pleased with that. Obviously, we had strong contributors like New Futura on the luxury end and, of course, Tapestry in the suburban area. And Tapestry is 488 units sold. Obviously, we -- the total project is about 861. So roughly about halfway there, but we -- what we had is time on our side now. We have a couple of more years to clear the remainder of the units. So I think there is no much concern on our part, and I think we done a very good product. Tapestry is one of the first of our so-called increased product quality and refined design. So happy there. We sold about 170 units in China, also in the first half, predominantly came from our Suzhou project. This is a Phase 2, which is -- Phase 1, we had 2 towers: Tower 1 and Tower 3. Phase 2, we had Tower 2. So that was predominantly from Tower 2 and we had a sprinkle of unit sales from some of our other China projects but predominantly driven by Suzhou. So therefore, that contributed to a strong -- very strong Q2, where we started to really recognize good profits. We had a big chunk from New Futura. We had about just under a dozen units from Gramercy Park. We -- as I mentioned earlier, we have Suzhou and then we have Park Court Aoyama The Tower, which is in Tokyo that, to refresh everyone's memory, is the joint venture with Mitsui Fudosan. We are just a small shareholder there, where about 20%, but project is done phenomenally well. So we're very pleased with the results. And of course, we are also happy that in China we opened our first shopping mall there. The pre-lease was very good prior to the opening in June. And so far the mall's foot traffic continues to build. So I think we're quite happy and encouraged by the results.

And lastly, as mentioned previously, I mean, I think we continue to focus on how we can enhance our recurring income streams. We've done a very small acquisition, which I'll touch more on later, which is in Shanghai's North Bund business district and we also announced our strategic investment into this E-House IPO as a cornerstone investor. So as a cornerstone, we do have a 6-month lockup on top of just a financial investment we just saw a lot more strategy behind it. So I can -- I'll mention a bit more on that. I mean, E-House basically has about close to 18,000 agents and they are in China and there are the #1 for primary developer sales. So it makes natural sense I think for us to invest in them and leverage off their network to move all of our properties, not just in Singapore but all China but even the rest of the world. And lastly, of course, we have 2 AEIs going on. I'll again touch more on that later.

So luckily, I think we had a -- we came back strongly with a nice set of results for Q2. As you all may remember, Q1 was kind of lackluster and our stock was slightly punished for it as well. But as many analysts here have already stated in reports, there was really issue of timing of profit recognition. So I think this time around, this quarter came back and we are very, very pleased that PATMI is up 80% year-over-year. And again, as I mentioned earlier, the 3 strong contributors are there. For the half year, similarly, I think we have displayed a good set of results and primarily all driven by our so-called development property segment, which has enjoyed healthy profit margins. As you've seen earlier, many of those land sites were quite much earlier, so we enjoyed good healthy margin from them.

One thing to point out, which I'm sure you've all already taken notice is the board yesterday, has kindly increased the dividend. So CDL, we know, we have a habit of declaring a special interim dividend. And it's always been $0.04, but this time around, they've increased it by $0.02 to $0.06. So I think that's a slight cheer to our shareholders.

In terms of our portfolio composition, it's still -- whether you look at it from an EBITDA perspective or from a total asset perspective, it's still roughly a half-half split between local and overseas. Of course, the reason why local weighs in so strongly is this includes Millennium & Copthorne our hotel portfolio as well. So this gives us a very nice even blend between here and overseas. And this -- and this is obviously, as you all know, one of the few developers that still holds our assets at historical costs less accumulated depreciation. So a very undervalued asset portfolio as well. And in terms of EBITDA, we had about 46% of that coming from our recurring income segment and the rest from -- powered by the property development. More on this, again, later.

Okay. So today, just take on a slightly different approach. I mean, I thought I would just talk a little bit about cooling measures. Not that you really need me to elaborate too much more. I think all of you know it as well or if not, better than me. And then, I'll talk a little bit about PPS structures, since that is something that tends to elicit lots of questions during the Q&A. And then, at the beginning of this year, you've all seen us unveiled this GET strategy. So again, just to touch a little bit more on how we're executing through our growth, enhancement, transmission.

Okay. So market sentiments in first half 2018, all of you know this well, basically, we had a very, very strong year in the first half and sentiments started to pick up. Every segment of the market enjoyed a nice so-called uptick after few very disappointing years that we've had. So the luxury sentiment -- luxury segment improved strongly and that obviously, is primarily, driven by foreign buyers and hence, likely to be the segment that's hardest hit by the recent amount of measures. The mass -- mid-market segments also enjoyed strong takeup and we've seen some new benchmark prices across the island. And the exec condo segment that has been quite sparse. I mean, we really only had like, I think, one project launched last year and this year by same developer also in Sengkang. I think, all of you know which project we're referring to, the one in Anchorvale. That's about -- around 630 units and they sold very well. In fact, they have managed to breach the traditional ceiling for EC projects. I mean, no one would've thought EC can cross $1,000 per square foot. And I would say, at least, good -- over 20% of their units have achieved -- have crossed that $1,000 PSF benchmark. So very, very encouraging and the fact that they sold so well. I mean, now there's really only less than 30 units for the so-called primary sales for EC. So this all goes well for our project too.

In terms of -- and then, of course, so this basically just looks at the history of the cooling measures. As you all know, we had the GSE back in '08 and that started off on a -- the market took a big tumble then and from '09 onwards, I think the market started to slowly pick up as sentiments started to recover. And despite the fact in 2010, the government came out with their first set of measures, the market, I think, absorbed it and started to keep pushing on basically, price you can see went on a big surge all the way from 2010 onwards. And for those few years, as I said, despite the fact that there were repeated measures put in, I think, again, buyers -- homebuyers managed to get around the negativity of that and continued pushing on. So we enjoyed -- I think, we saw overall developer sales in Singapore bought 15,000 to 16,000 units for those couple of years rising all the way to, I think, we peaked in 2012 when we had a 22,000 units sold for that year. And then, of course, in 2013, unfortunately, it could not -- market could not withstand a double whammy, right? We had a January when they increased the ABSD and then after that, subsequently in midyear, they introduced total debt servicing ratio framework. So that together, I think, came as a big hit to the market. And then from 2013 onwards, you start seeing volume taper down. And so the truth is, we actually had -- the last 4 years were very difficult years, right? I mean, from 2014 onwards, on average, we saw maybe 7,000 to 8,000 units a year. Those really were few years in the wilderness and we had our challenges too. We had to keep value engineering to keep our cost down. So our price fell over the last 4 years by about 11.7%, so roughly about 12%. So I think last year in Q3, when the market started to show some signs of recovery, we were very, very encouraged and enthused as well. I have to say, we are quite disappointed. I mean, we felt that the measures were very, very onerous and certainly, quite harsh. And we wish that -- I think, there was a bit more time for the market to find its equilibrium. I mean, after all, for the last 4 quarters, prices have risen about 9.1%. But still nothing compared to the 12% decline we've seen over the 4-year period. And furthermore, as I said, volumes were nothing like what they were in the past. And lastly, even on the exuberant en-bloc seen, as many of you know, I mean, I think, so far, there were at least more than 30 en-blocs that have not been successful. And so the market was already coming to equilibrium. But unfortunately, on the 6th July, the handle was brought down further, and I do think that we will, certainly, see challenges ahead, and it will definitely affect the pace of our sales. It will definitely affect the volumes that are transacted. And I believe the prices will be affected as well. In fact, some of the recent new launches have already been done at lower prices. So this is a reality we're going to have to accept and adapt to it.

Okay. In terms of PPS structures. For PPS 1, as you all know, I mean, we packaged it into 2 separate packages. One was the residential and the other was hotel and the retail mall and we sold it to 2 different sets of investors. We are currently actively engaging with the investors to see when would be a good time, I think, to put those assets on the market for sale. Just to remind everyone because there seems to be a lot of confusion here based on the questions I received in the past. There's no obligation on CDL to buy back any of the assets in any of the PPSs. So the truth is, I think, the real question there is when would be the best time for us and our joint venture investors to put it back on the market. And so that's PPS 1. PPS 2, as many of you have seen in the press and it's being well covered by Business Times, we have actually put 2 of the assets on the market for sale. One of them is the Manulife Centre and currently, we're very very pleased with the amount of interest that it has attracted. We are in advanced talks with one party and hope to be able to bring you good news pretty soon. And secondly, as also Tampines Grande. We put that on the market, and we are currently evaluating, I think, all the bids that we received. And, of course, this is in consultation with our partner, Alpha, which is part of Keppel. So I think both of us have been very pleased with the process. Neither us nor Alpha has decided what to do with Central Mall yet. But I think, we're just looking to offload the other 2 properties first, since they are much bigger. And lastly, PPS 3. The truth is, we had -- we're actually not equity shareholder anymore. So we've sold this off to a collection of ultra-high net worth investors and we were looking to actually launch this around last month or this month and all the equity shareholders were fully supportive. Unfortunately, as I said, 6th July occurred, and therefore, I think the wise thing to do is to put it on hold for now. And let's -- I think, let's take stock of where we stand and let the dust settle and then we can figure out again what to do. But there's still time. Each of these structures is a 5-year structure. So there's still time for PPS 3 anyway, because it was only done in October 2016.

Okay. So onto the GET part: growth, enhancement, transformation. Really, it's quite simple. Growth means driving strong growth for our property development segment as well as our recurring income side, and while a lot has been said about focusing on recurring income, make no mistake. We're definitely going to drive our property development strongly as well, both locally and overseas. Enhancement is about enhancing our asset portfolio, especially on the recurring income and leasing side, and that's where we also brought in, I think, a senior hire, Yvonne and she's turned out to be great. She is now Head -- CEO of Commercial and heading up our asset management efforts, professionalizing things and we really hope that together, via a combination of better leasing strategies, good AEIs, repositionings, redevelopments, we can really drive our so-called rental portfolio. And in terms of operational efficiencies, same for both segments. I think, property development, we've shown you on Tampines, we've shortened our time to market, and likewise, I think, we're having the same discipline when we approach our rental portfolio. And lastly, for transformation, I think we're going to do -- obviously, we brought Frank on board and we really want to drive, I think, our fund management business there. That's going to be a big piece for us as we start to drive forward and leverage off CDL's track record and expertise. For innovation, you've seen, innovation and venture capital, we've really started to drive ourselves on that front, and I'll talk more about that later.

So in terms of our residential launch pipeline. These are launch projects. I think one thing that makes us -- that gives us a lot of relief is the fact that actually it's quite interesting but we have sites scattered across the island from west all the way to east. West to central to east, and we have sites that are all the away from so-called EC to mass market to mid-end to luxury. So I think, it's very nice in a sense, it allows us to, I think, time our launches and to drive the particular segment, I think, that we feel is most appropriate for that market timing. So just to quickly cover, obviously, there's a West Coast Vale, and that we are targeting to launch in -- around November of this year. That's around 716 residential units. Many of you know, I mean, the project right across the street from us this Twin View has done well, and they have sold -- they are more than -- they're almost 90% sold and they've average about 1,400 per square foot. So that's actually, honestly, higher than our underwriting when we got the site. So I think, we're very pleased to see and encouraged by that. And even if prices were to fluctuate a bit, I think, I'm pretty sure this site can withstand it. By the way, the new name that we've picked is Whistler Grand, because it evokes images of Whistler Slopes in Vancouver in Canada, one of the most famous ski resort areas. Secondly, we have Handy Road -- so coming to the core central region. We have Handy Road, again, it's not a very big site, it's only about 188 units, so -- and we're not too worried. I mean, we feel that we can do smaller units to really cater for working professionals in that area. Then we have Amber Park in the east. Again, I think, we are encouraged by the recent sales performance of Amber 45. Not that much smaller project than ours, but we've got a great architect behind this. We have [ LCDA ] there's a chance and so we're doing. A real masterpiece there and we can't wait to unveil this next year. And lastly, we have, of course, our EC project, Sumang Walk in Punggol. We're unarguably a better positioned than the other project I mentioned earlier, and therefore, I think, we are very encouraged. I think this will sell very well. [ Offload ] there is not much supply in the market with less than 30 so-called developer units.

So together, this gives us about 2,600 units, slightly more than that. So on to the other part of growth, which is our recurring income. We -- as I mentioned earlier, we didn't announce this separately, so we thought we'd share it with you now. But it's a very, very small acquisition. We spent CNY 148 million just to acquire a small office block in Shanghai's North Bund district. North Bund is a very very mature office district. So it's a office subdistrict. I mean, it's not your super high-end stuff like Pudong's or Lujiazui, but it's a very, very strong and stable mature office district. And in fact, actually we've removed all the lease up risk from here, so this is an example of how we work with our portfolio companies we invested in. So Distrii, our coworking startup that we took equity stake in Distrii is actually -- we're actually doing a long-term master lease to Distrii for this property. So once we take it over, we're going to do a little bit of AEI and then do a long-term mass lease to Distrii. And we literally have no lease up risk. So I think this can immediately start, I think, generating good rental for us, albeit small.

Now on the other side, I'm sorry to be so naughty, but the fact is we are not allowed to disclose that acquisition. And if all goes well, it will complete next month. So we're very excited about it. It's much more sizable than the one on the left. It's over SGD 300 million, and we're very, very excited. It's really a nice core plus office asset in one of our key target markets and we're looking for, I think, to really having that in our portfolio. It's going to be a very very nice property and a lot of upside for us to increase rents in that building. Currently, very, very under-rented.

Okay. This is -- so this is the last part of the growth part and it talks about the recurring income, which I just covered, 2 new pending acquisitions. This slide certainly should raise some eyebrows, in fact, I had a lot of questions internally about are you sure you want to put this slide out there for everyone to see, because this really does put down a hard target for us to achieve and it's not an easy one. So basically, I think the truth is -- if you remember from the last time in February, when we did analyst briefing, we kind of threw out figure that we want to achieve 65% so-called EBITDA should be recurring within the next 10-year time frame. But

the truth is, we realized it's not very meaningful figure, right? I mean last year, we were at 56% recurring income for the full year because our development profit was quite weak. But this year, with our development segment surging back, our EBITDA dropped to -- our recurring EBITDA dropped to 46%. So rather than give you a percentage, I think we're taking a much more bigger risk and we thought we'd just give you a hard target, because I can't control development, right? I mean, if you want to control development income every year, it means you literally got to keep buying sites nonstop. And that's not good for us. We want the time -- our land acquisitions in not only Singapore, but various markets. So in order to do that, I can't maintain a constant development income. But that's where recurring comes in, right? Recurring really helps us have a strong base and therefore, as I said, I'll rather just focus on giving you a hard target. We're giving ourselves 10 years to get to $900 million. Currently, we are at about, every year I would say, we do probably about $550 million to $600 million. For this first half of 2018, we are around $290 million for our recurring EBITDA. So basically, in order to go from $600 million to $900 million, does not sound like lot but $300 million extra EBITDA is a big deal, and we're going to need to really deploy serious capital to make it happen as well. So obviously, that's going to happen from 3 fronts. One, obviously, we're really going to need to work closely with the Millennium & Copthorne and drive our hotel performance, because our hospitality division is one very very strong leg for us for our recurring EBITDA. Secondly, we're going to need to really manage and so-called yield-manage our rental properties better and really drive performance. And that's why I talked about so-called asset enhancements, repositioning. Then, I think, we'll drive a lot more down to our recurring EBITDA line. And lastly, of course, when Frank sets up his fund management that will help in twofold -- in 2 ways. One, that will also invest in office assets which we're likely to be a substantial LP, the middle partner in the fund. So we will enjoy from that perspective. And secondly, that will also drive management and performance fees, which will add to the recurring EBITDA. But, no doubt, that will only start to contribute so-called significantly once the fund management reach a scale. So Frank, you have to accelerate your efforts, please. So this is a big number, but we are confident we can get there and what is measured gets done, right? So I think let's really set ourselves on this goal.

Okay, so onto the second part enhancement for AEI. I think, I don't need to spend too much time, but basically, we finished one ahead of schedule, in July, which is this Le Grove Serviced Apartments. And that, I think, we are very, very pleased with it. It's on Orange Grove Road. We actually gone out of days when, I think, lots of expatriates come here with big budgets and big families and need huge service apartments. So we have downsized the average size of it to a much more palatable size. And basically, we've increased the key comp by almost double, right? It went from 97 units to 173 apartments. And ever since, it got put back in operation from mid of last month till now, very, very happy. I think, it's -- the initial part is -- results very encouraging and it's surging up. So we expect a strong performance from that going forward. And of course, we finally commenced our big AEI our $70 million AEI for Republic Plaza. This is our flagship asset. We got to look after it. It is in a great location but looking tired and looking worn. So that's where, I think, we're really going to transform the entire office building and we target it to be done by the middle of next year. So we're very excited, I think, for all of you to see what the end product is going to look like.

Another part of enhancement is also this asset management. I mentioned earlier about how we hired Yvonne who's our senior hire. So previously, I think we had a lot of different departments focusing on our rental portfolio but sometimes, not always, so-called integrating well together, so we have leasing property, lease management customer service but right now, I think we -- won't coming in and professionalizing our asset management capabilities, I think, we have integrated all these departments very strongly into one whole and basically, segregated them really by asset classes that -- so we have office, retail, industrial, and residential leasing.

Transformation. So my last slide for the section. Transformation, I think, is where we are looking, I think, for a big jump there. So sorry, actually realized we don't have slide on fund management, but anyway, Frank will talk more about that. So I think Transformation is really 2 bits, right? One is the fund management aspect where we're really hoping, I think, to eventually drive a substantial AUM. And secondly, of course, innovation of venture capital. And this is both external and internal. So I think externally, you've seen as we made investments in portfolio companies that have synergies to our core businesses of real estate and hospitality. So that includes things like mamahome and Apartment Rental Platform and Distrii which is co-working. And on top of that, I mean, in order to, I think, have a nice pipeline of visibility into what sort of technology is out there, we've also so-called started to put out -- invest in venture capital funds like Dragonrise from China and also Fifth Wall, which is a U.S. property technology fund, proptech fund, and together, I think, this will give us a very very strong visibility into what sort of really exciting technology is coming on the pipeline that we can harness for our business. On the right side, is our internal innovation initiatives. So basically, at the beginning of the year, we set up this Enterprise Innovation Committee and this is comprised of our youngest and brightest in the company and that will also, I think, help to drive innovation strongly, right? And basically, when driving innovation strongly, you're looking at 2 factors. How to deliver more value to your customers. And how to make ourself more efficient and more effective internally. So that's what the EIC is for and Eik Sheng will touch on that more later.

So thank you. I made this as brief as I could. I will now pass it on to Yim Ming who will take us through the financial highlights for the second quarter and the half year. Thank you.

[Yim Ming Yiong, executive]

Thank you, Sherman. Good morning, ladies and gentleman. I'm delighted to share some color on the detailed financials. Sherman has already done the key financial highlights, so please allow me to dive straight in into the segment analysis. So this slide show the revenue by segment for the past 3 years for the second quarter. So property development account for 60% of this quarter's revenue, underpinned by 3 projects: Gramercy Park, which is now fully sold, New Futura and Phase 2 of our Suzhou project in Hong Leong City Center. As you all aware, revenue from overseas project and ECs are recognized only either upon completion or upon handover vis-à-vis a progressive recognition for Singapore private residential projects. Hence, there will be lumpy recognition for revenue. But regardless for this time around, the revenue contributions from Gramercy as well as New Futura has strongly boosted this segment.

Hotel operations saw a drop in Q2 revenue. M&C constitutes the bulk of this segment, while some currency play accounted for the decline with the weakened USD. Disclosure of our Mayfair hotel. Poorer performance of our U.K. hotels also contributed to the decline.

The other 2 segments remain fairly stable. Next, we go to PBT for the past 3 years for second quarter. With our healthy margins for our property development, you will note that property development accounts for 78% of the PBT this quarter. A very stellar performance powered again by the 3 projects mentioned earlier. This quarter also saw a maiden contribution from our Japan project which Sherman mentioned, a 20% interest in Park Court Aoyama. Fortunately or unfortunately, the other segments now pale in comparison this quarter relative to property development. You will note the decline in PBT for this quarter from hotel operations, notably, there were several one-off in the second quarter of 2017, mainly the $22 million write-back of impairment losses for Fena as well as the impairment of goodwill for Lowry. So even if I were to strip out these one-off items for hotel operations, the hotel operations has still sub-performed as prior quarter with the poor performance in U.K. as mentioned earlier.

Next, we go to revenue by segment for the past 3 years. The first half 2018 actually reported revenue of $2.4 billion, the highest recorded for half year results to date. So without sounding like a broken record, again the 3 superstar performance, plus for half year, we also have a criterion, one of our EC which completed in March this year. So these were the main contributors for revenue. Revenue from rental properties is also consistent with first half 2017, but lower than first half 2016. As with the PPS 2 in December 2016, for the 3 office assets, so has the contribution for first of '17 and '18 were lower, but comparable.

Next, we move on to PBT for the past 3 years. Similar trending. On this note, we're happy to note that the group overseas diversification strategy has all go well with Japan and China contribution contributing about 40% of the property development profits.

You also note that the hotel operations is lower in first half '18, as mentioned earlier, due to the poor performance and one-off items. Rental segment in -- for the first half was 53% higher than first half 2017, because there was $29 million gain that was recognized, following the sale of Mercure and Ibis Brisbane by CDLHT. So notably CDL adopts the conservative accounting policy of depreciating our properties and there are no revaluation gains in this set of financial statements.

EBITDA by -- for the past 3 years, this really becomes our report card, demonstrates the cash generation, adds to our firing power for growth. So Sherman mentioned our 10-year target earlier on of $900 million. So right now, the recurring segment accounts for $290 million, as he mentioned, representing 46% standing against a very strong property development segment.

So with that, I'll just move on to capital management on the financial metrics. Very robust as usual, we had maintained a strong cash position of $3 billion and net borrowings position of $2.3 billion. Gearing has gone up to 19% as of 30th of June, following the full payment of the 4 land sites that we won earlier.

Interest cover stands very healthy with, of course, higher EBITDA. So it stands at 18.4x to weather any rate hikes. So basically, with a strong financial metrics, I mean, we firmly believe that this complements the growth for recurring EBITDA.

The last slide, we're also happy to inform that the group has a very balanced debt expiry portfolio as well as a currency-to-currency mix that evolves with our geographical distribution. So once again, a very big thank you to all the banking partners in this room. Average borrowings is kept low at 2.2% and we also maintain a high percentage of our fixed-rate debt, currently standing about 52%.

So with that, I hand over to Mr. Chia for Singapore operations. Thank you.

[Ngiang Hong Chia, executive]

Thank you. Good morning, everybody. I think Sherman has given a very good coverage for the local, what he said, otherwise I will supplement a few key points. As you can see actually, the volume of sales has dropped but our value has gone up. This is because of project that were so come from 2 very nice project, New Futura and Gramercy Park as highlighted by Sherman earlier.

Next please. Okay. New Futura, now we have sold 93 units or more since then and that when you had buyers by 80% foreigners and self-target the first phase also has one and average price achieved, you can see, is $3,005, quite respectable. And we hope to set the balance that the one unit as soon as possible.

Tapestry, 861 units, as Sherman mentioned, but we [ still for a 90 ], and this is a reverse of the high-end where 80% of buyers are first-timers or locals. They are local buyers or PR and -- but most of them are first-timers. So it's a reverse. But as the New Futura, it's 80% foreigners and this is quite in line with the market work -- market trend. And it is very good location. We have a lot of good attributes, as you can see, and a unique choices are very wide from 440 square feet to about 1,007. So hence, we are quite confident that it will continue to move now with settling the [ cooling ] measures.

Okay. I was talk -- actually it's quite low actually but bulk come from this capacity about 370 unit left, I mean this is as of June as of now about 370 unit left. So we probably have to launch the next project, as mentioned by Sherman, the Whistler Grand in the fourth quarter so that we can boost up the inventory.

As you can see, the Whistler Grand, we have several hundred unit and we're quite confident that it will be well received, because there's hardly any other project in the West Coast. Most of the projects are either in the Serangoon area of the Chinese side. So we're quite lucky that we manage to get this site where very few competition and our neighbor, as Sherman mentioned earlier, has sold over 80%, at quite good pricing above our underwriting price. So we are confident that this project should be well received. And the EC, we are even more confident. This probably will be the first EC project launched next year or maybe the only one launched next year, because they are going to sell to more projects this year, but there's a 15-month requirement, so by the time they did launch probably is 2020. So with this good location, we believe it to be well received, this EC.

Next, you take a look at South Beach 190 units. We are now reviewing the possibility of self-launching and previewing the project. Because New Futura since our announcement of the cooling measure, we have sold another 5 units. So looks like if the project is very well located and reasonably priced, we lease the entire unit,so we were reviewing knowing from they get and those who are keen please contact us. No it's a very nice project if you go out there probably, with [ F1 ]coming you want to have a unit there. I'm not joking, seriously.

Okay, next one is the office sector. You can see here. Republic Plaza is here with 16 commercial properties, occupancy of 92%, national average is about 87.8%. So we're quite healthy. I think, probably most of you are more interested in these expiring leases. We have reduced most of the leases expiring this year or second half, only 12% left. Next year 30%, 18%. We are not worried because of good the AEIs, Sherman elaborated earlier, and we believe with the rising office market, we should be able to capitalize at the rising land to improve the AEIs and the rent. So we are very confident. I think, the timing of our AEI is wonderful, especially with improving office market.

Retail portfolio, quite strong 96% occupied. As you can see, also well-spaced out renewables. So we should be able also to write on a market in terms of choosing the right trade mix and the tenants to improve the yield.

I think with this, I thank you.

[Shao Khoo, executive]

Thank you, Mr. Chia. Good morning, everyone. I will try to keep this within 5 minutes, so if you have any questions, we can do it during the Q&A session.

Starting off down under, we have a project in Brisbane, which is a residential project that is about 90%. So all is well in down under.

Going to China, starting from Chongqing, we have a project that we JV with Vanke, which is Eling Residences 50-50. We started selling this project in May, and so far, we have sold 24 units out of the 224. Sherman touched on a few projects already. The other highlight I want to make supplement to what Sherman has said, is that we opened a mall in June, which is 56,000 square feet mall. The traffic is improving. I think the first week, we had about 40,000 foot traffic. Today, we are close to 100,000. So the mall is getting more and more traction within the Suzhou area. Sherman also touched on E-House. Again, for us, to be very clear, E-House is both a financial investment and a strategic investment. So we were cornerstone investor in E-House together with Ali Baba, Henderson Land and Overseas Chinese Town Holdings. For us the reason why we invested in E-House is that obviously, like what Mr. Chia mentioned, a lot of our Singapore projects are being bought by Chinese investors. The Chinese are also looking to buy in London. So we actually have a strategic agreement with E-House whereby, we can use their database to market our projects in Singapore and in London to the Chinese buyers. From a financial perspective, it makes sense for us because E-House is trading at forward PE of 6x -- 6 to 7x. Whereas, if we look at other international brokers, they're creating at forward PE of about 15x. So financially, it also makes sense.

Quickly, in London, we had a very good month last -- -- we had a very good month in June. We had 2 projects that got planning approval. So the 2 projects is basically Pavilion Road and Development House. So Pavilion Road currently is a car park, 100,000 square feet car park. We have just gotten a planning approval to convert it into a mixed-use development consisting of 24 residential units and -- some retail and a gym. Development House is a very old office building. We just got approval again last month to convert it into a 9-story office building in terms of GFA, about 72,000 GFA, 63,000 worth of office, 7,000 affordable workspace and 2,000 retail.

And I will now just quickly touch on the fund management area. So I think on the fund management side, we are adopting a two-pronged approach. The first strategy is, obviously, to grow organically; and then, the second one, a bit more opportunistic looking at mergers and acquisition. On the organic growth side, we have divided it into places where CDL have deep domain knowledge and great execution ability and that is essentially in Singapore and China. So I think in Singapore and China, we are starting to talk to institution investors, whether may it be the sovereign wealth funds or pension funds that want to come to Singapore, that's where we will probably do a JV with them to buy brand-new projects.

Outside from Singapore and China, obviously, our presence is not as great. So I think, in these markets, we will probably use CDL's balance sheet to acquire these assets to us and hence subsequently put it into a fund.

On the merger and acquisition strategy. Obviously, we are talking -- investment banks are showing us platform opportunities. And again, it's very opportunistic. Sometimes, it make sense financially but culturally, it doesn't fit. So we continue to explore growth through both organic and M&A opportunities.

I'll now pass it over to my colleague, Eik Sheng.

[Eik Sheng Kwek, executive]

Okay. Just covering hospitality. You can look at the M&C performance for the first half at a constant currency. Revenue and PBT are both up by 3% and 6.6%, respectively. However, this doesn't really translate down to the PATMI line. You can see that it dropped by over 33%. So I'll try to explain this. The PBT line is directly hit by, I will say, a subpar U.K. performance, which is also compounded by the partial closure of the Mayfair. So this flows directly to the PBT -- PATMI line and since it's held there by M&C. But on the other hand, PBT line was boosted by the land sales in New Zealand and as well as the acquisitions at CDL Hospitality Trust and both of these we actually have quite significant MI component.

One more reason is that actually both periods for

2018 and -- versus 2017, the PBT line had been boosted by a net $3 million gain. But again, the gain comes from -- for 2018 from the land sales -- or sorry, from the CDL Hospitality Trusts sale of 2 Australian hotels, again, with a high MI component, whereas 2017 was due to a write-back, which affected M&C directly.

On the trading performance, you can see that New York especially benefited mainly from the Millennium Hilton One UN, but it should still be noted that as a whole the U.S. region is still loss-making for the first half, and so this U.S. turnaround is going to be one of the key priorities of the new CEO there as well.

London is down by 15% and even if you strip out the Mayfair closure, is still about 4% decrease, which is still quite disappointing as well. Singapore remains stable. In fact, demand for rooms is going up, but they're still working through the supply from 2017. For North Asia, both Taipei and South Korea did well. And for South Korea, they also benefited from the North and South Summit as well. New Zealand continues to perform, especially with the opening of the M Social Auckland since last October.

In terms of asset enhancement. We've also just announced that they've closed the Mayfair for the renovation program. They're going to spend over GBP 40 million to make this the flagship 5-star hotel in the group. And making sure this property opens in time for Q1 next year is going to be another of their top priorities as well. For the rest of the portfolio, they also announced that they would be looking about USD 18 million program for its New York properties. In Singapore, they've also started the renovation for Orchard Hotel for the ballroom and the rooms as well in the Orchard Wing.

Okay, CDLHT. Most straightforward. Revenues up because there have been recent acquisitions last year in Europe and a stronger contribution from Singapore, but NPI is down because it's divested 2 hotels in Australia and also closed the Maldives property as will. That will be rebranded as Raffles by the end of the year.

Okay. Just a very quick one on innovation. We have a couple of investments in the proptech sector. For Distrii, this the leading co-working operator in China and they've also just opened Singapore's largest co-working facility at Republic Plaza, and they're also targeting to open 100 locations by the end of next year. And more recently, actually they've been appointed by one of the Chinese SOE, state-owned enterprise, to design and manage large facility. This is quite similar to how the multinationals in the U.S. Microsoft and GE of getting reworked to manage their hotel -- office operations. So it's actually a very positive sign and a credit to Distrii's track record.

Okay. On mamahome, this is the online apartment rental platform. They also continue to grow their listings, and they're also partnering with a state-owned enterprise. These parties have put their inventory onto the mamahome platform. In Singapore, they also started using the platform's login brand. This is their cool living concept. Sherman mentioned earlier, this is actually part of our broader innovation strategy. So what we've done is that we've entered into 2 partnerships. One each on a major technology hub. For China, we're partnering with Dragonrise Capital, that's the tech VC fund looking at both AI, deep learning and real estate as well. Fifth Wall will be the other counterpart in the U.S. looking at the real estate tech scene as well. So this also helps us to expose to a wider network overseas and also helps to build our investment pipeline into proptech. And at the same time, we can also use this proptech and integrate it into our own operations and capabilities. We also continue to look out for other collaborations and partnerships to drive this innovation as well.

Okay, then I'll hand it back to Belinda..

[Belinda Lee, executive]

Thank you very much to the executive team for your presentation. We'd like to now move to the second part of today's briefing which is actually the Q&A. This is the opportunity to ask all your hard questions. So don't feel shy. My colleagues are actually standing around the room with a microphone and if you have any queries please raise your hand. [Operator Instructions] So I think without further ado, I'll just now open the floor very quickly. If there is anybody with the first question, if you could raise your hand. Maybe, I'll take from Cheryl first. Make sure you introduce yourself and which organization you represent.

[Cheryl Lin]

I'm Cheryl with Channel NewsAsia. I just wanted to ask, I know this is on the second quarter. But just want to ask what's the outlook for residential sales in the second half following the measures? And have you seen any impact so far?

[Eik Tse Kwek, executive]

As mentioned, Cheryl. As mentioned, during my presentation, I think, the truth is, I mean, we're quite cautious about how things will pan out for the second half of the year. I think it would be naive to assume that these cooling measures will not affect us. Definitely, I think, there will be impact on the pace of our sales and so certainly, this will affect how much we can clear of our existing inventory. The other thing obviously, is that if you look at the previous cooling measures, as I've shown on my slide earlier, I mean, prices kept so-called pushing upwards despite those cooling measures when they came up between 2010 to early 2013. But in this case, I think prices will certainly also be affected. And as I mentioned earlier, I think, we've already seen that in some of the newer projects that have recently launched. I mean, they're probably, if you ask me just a personal opinion, I think, they're probably launching at about maybe 15% below -- 10% to 15% below where they could've actually launched that in terms of PSF pricing. And I would say that, -- and of course, these recent project launches are quite lucky because their land was acquired earlier, so they do have that margin. But there isn't a lot of room, I think, for prices to go down a huge amount, so we're unlikely to see a huge masses tumble in prices because primarily -- because most of the developers replenished land over the -- -- who replenished land over the last 12 months did so at very high prices. So again, there's limited flexibility when it comes to so-called either giving out discounts or even so-called paying higher agent commissions to get sales moving. I think -- so this time around, I think it will be very different from the previous cooling measure cycles.

[Belinda Lee, executive]

I saw a hand over that side, maybe...

[Unknown Analyst]

[indiscernible] from [indiscernible]. Two questions. One for Mr. Chairman. After the cooling measure, how do we adjust your prediction about local property price and transaction, because previously, you expect the local property price to raise about 5% for the full year? So will you adjust your forecast now? And the second question is for Sherman, and because you said earlier that CDL will continue to bid for more sites this year. So after the cooling measure, will you consider adjusting your strategies now?

[Leng Beng Kwek, executive]

Well, I think when the government announced on 6th of July about the cooling measure, which came unexpectedly, you will notice that before midnight, everybody queuing up to buy, because they want the 5% discount or no increase in the 5%. So my reading is that there was a nature in that reactions, and I believe that it depends on the location, whether you have too many competitors around. When it comes to settle down, the price should go down to 5% to 7% maximum. In certain cases, in fact, the price may even go up. Don't forget that we still have a lot of people who are very rich, hence we sell of en-bloc sales. They have -- maybe they used to staying 2,000 square feet, today the children don't stay with them. They will have -- rather prefer to have a smaller unit and they stay in 3,000 -- 2,000 square feet. They got maybe $4-some million, some got as much as up to $8 million. Then they will buy half the size because when the children not staying with them, it is very obvious that you don't need such a big place. So there are still people who have the money. My greatest concern is not how much it will go down or how much it will go up. My greatest concern is that when everybody expect or a lot of people expect the prices will go down, they will have to wait-and-see attitude. And that is no good because that will reduce the volume. Once the volumes goes down, then very obviously, the buyer expect the prices to be going down. The more important fact to bear in mind is that, may not the same block sales they got the approval to launch because of the penalty and ABSD and so on. I think every one of them will rush out to sell as soon as possible. But in the light of the prices with tender so high, they can either try not to sell low or they sell too low, there is a limited can go unless you want to lose a lot of money, which no developer would want to lose. My reading is that with the current trade wall of tension between China and U.S., and, of course, the Brexit, some measure has been taken by U.K. tying up with Japan in a very big 3 deals. And also, I think U.K. is preparing for the consequences if there is no Brexit. If there were settle down and, of course, the Rocket Man is happy he is having a steadier position visiting Xi Jinping 3 times after coming to Singapore, and he has seen the world, has seen Singapore. I think he is quite prepared to do some deal, provided he is risen above. If all these things are all settled, my belief is that Singapore will benefit a lot and with Singapore benefit a lot, it may be too late for you to buy a property at reasonable prices. You buy only when people want to sell. You sell when everybody wants to buy. You don't follow the instinct. That's my advice over 45 to 50 years. A lot of people make a lot of money and if you analyze some of these are our property that we develop years ago, they are in the best location or some of the best location. Today, I think, as the sensitivity and the forecast of the future that is deterring people from making a firm commitment. So I would advise that nobody in the world, in the economies, they always have different views and the world will tell you tomorrow or the year after, the world is not going to be upside down. You have to make your own decision. Buying property is a long-term commitment and if you buy a property in a good country with good government, how can you go wrong? Today, don't forget, everywhere, including Hong Kong, U.K., even in southern countries in Australia and so on, you tell me, is there no measure, cooling measure, there are always cooling measure. It's a question of degree, it's a question of at what point of time. There are many ways to debate relief the cooling measure. Some of the ways, if we are going to be in the destructive world, we can think of better ways of introducing cooling measures, and here I'm saying that there are many ways of doing it like for example, if you believe there is going to be too much units going to be offered in the market, this is not possible that the government GLS land be transferred to the sub-lease. If you want the property, because as a developer you need raw materials and you have no raw materials you cannot produce finished product. So you put it in the sub-lease and if you're hungry because you don't have them bang, you don't have the raw material, you can initiate the tender and if how many people are interested then you can see how good is the demand. I mean, this is one way. There are many ways to deal with this situation. And I'm sure our government is very aware over 90% or 92% to be precise on property, including housing bought. And it is not the intention I assure you and I can tell not the intention of the government to crash it to the ground. They want to take precaution. Perhaps, people in the sector, in a way, think that this action is -- has come a bit too early, but they must do it with interest rate going up but interest rate in my opinion will not go up very high. The economy of U.S. is slowing down, in EU, you can borrow to buy, very cheap interest rate, they got negative interest rate. So I think taking into account everything, the situation is not as bad as one might imagine, because normal person will say, "Ah, this is bad. That's the end of the world." And then many of them will say, "Let me wait and see." The greatest scene is wait and see. I hope I have answered you.

[Eik Tse Kwek, executive]

Very, very detailed answer from the Chairman. So always very good. On your second question about bidding for land. Certainly, I mean, we will adopt more caution. I'm sure every developer in Singapore will do so as well, but as Yim Ming has presented earlier, I mean, we are still lucky, I think to be afforded with a very strong balance sheet. And therefore, we certainly still want to continue to grow our development exposure. After all, you've seen that how strong our development segment can contribute, I think, to our performance and this is our bread and butter, right? I mean, doing residential developments in Singapore. So I think, firstly, we will look -- I think, we'll carefully review sites and look for those in locations where we will be able to have a advantage for instance, as Mr. Chia mentioned earlier, in locations like West Coast we are very lucky to get that site because our direct competitor across the road has already more or less sold out, as I said, around close to 90%, sold out. So by the time we launch at the end of this year, we should be relatively free from so-called new competition. And so I think, we will look for sites that are in strong locations that will enable us, I think, to really have a distinct advantage and price and we will price it correctly. Secondly, obviously, we will look at EC sites. Needless to say, earlier, you've seen a dearth of supply in the Singapore market with less than 30 units in the primary market. And now having said that, every developer, I'm sure, has the same thought as well. So those that are well-funded will likely compete aggressively for the EC sites that are coming up throughout the -- for the rest of this year. And there are 2 sites already on the list. And lastly, I think I've always very much liked these integrated developments. So sometimes they take the form of 2 envelops, sometimes they don't. But I always feel that that's where a developer can truly value add and create something that becomes a landmark for that area or for that precinct so it's kind of very similar to -- while I shouldn't mention competitor projects but like say in Punggol I think, like Waterway Point is a very well-done project that's become the anchor of that whole district and precinct and is almost like the focal point where you take a -- you take distance from that to measure where you are and how central you are in Punggol. So similarly, I think -- and also when I did my first ever integrated project was when I went to get our site in Suzhou and so, as you know, that is -- we have a 2 resi towers, one SOHO tower, an office, a retail and a hotel. And I think when you -- all these pieces come together you can truly create something that anchors down that whole area. So I think -- and currently, we are in the middle of one of the tenders, the 2 envelope tenders together with our joint venture partner, CapitaLand. So we are still very excited. I mean, irrespective of whether they have been this new cooling measure, we would have still gone after, I think, that integrated development in Xing Kong Central I think we see great potential in that site. So I would say, yes, we will continue to bid, but certainly with a lot more caution than before the measures came online.

[Belinda Lee, executive]

Okay. Could I -- maybe let me just take Kevin first. Kevin, you will introduce yourself.

[Kevin Lim]

I'm Kevin Lim. I represent Nikkei. Can I just have CDL's outlook on China? Given that is one of your larger overseas markets, the economy is slowing and there are also property cooling measures.

[Eik Tse Kwek, executive]

Good question, Kevin. Never easy to answer so-called a question on China's general economic outlook and growth, because they always tend to surprise in many different ways and it's always difficult to know how -- I think the TOP leadership in China will steer the economy. But having said that, I mean, when we made a decision to enter China in 2010, I think we took a very long-term outlook and we will not be so-called deterred just by short-term measures. Are our projects affected in China? Yes. I mean, like say in Suzhou even though we've been recognizing seller sales over the last, what, the past 2 years plus this year. But the truth is, we are affected, too. I mean, right now the government controls you all the way down to even your selling price. They put a cap on the selling price of your residential units and that's a very, very harsh and onerous restriction. But it's something we have to live with and we have to get around and move on. And it will, so-called in the end anyway, end up translating into more sanity for land sales by the government. Every developer will obviously factor in the fact that there are all these cooling measures. So the truth is, it will translate into, I think, better pricing for land and therefore, we're still definitely bullish long term. And right now also, we're seeing a lot of opportunities come up in China because many developers are definitely dealing with credit issues, quite severe in some cases. So there are opportunities for us to either buy all the part of the asset portfolio or invest in their company and become a joint venture partner for the long run. But either way, I mean, we think plenty of opportunities in China. We continue to be bullish. Yes. In the short run, they will certainly be affected. The property market is affected by all these onerous restrictions that come up with. The general economy will be affected by this so-called increasing trade war, which is definitely not healthy not just for U.S. and China but for all of us. So we hope that they find some truce at some stage. But yes, we're still long term, I think, confident about the growth there. And if you look at the general underlying trends urbanization, modernization, I mean, there's so much of that still to come in China and the economy really is still in the midst of transforming.

[Belinda Lee, executive]

[ Abhishek ]. Maybe just introduce yourself over the mic, please.

[Unknown Attendee]

This is [ Abhishek ] from Bloomberg News. I just wanted some more color on how many Singaporeans are upgrading from HDBs to condos after the measures and now that prices have come down a bit?

[Ngiang Hong Chia, executive]

Good question. As we mentioned earlier, first-timers are very minimally affected. So if they're HDBs they will upgrade, most likely they don't pay ABSD, because within 6 months after they get a possession of the new housing, usually they can claim better tax. So we think that the impact on first-time buyers were much less because that way, ABSD and also the -- only the LTV is affected 5%, but I think as explained they can use part of it -- of [ CPL ], so I don't expect it to be very [ affected ].

[Belinda Lee, executive]

Okay. Maybe take some questions from the analysts. Yew Kiang maybe.

[Yew Kiang Wong, analyst]

Yew Kiang from CLSA. Can you roughly remind us how many of your projects are still subjected to any upcoming QCs because I remember Venue Residences previously was subjected but is fully sold by [indiscernible] 12 units of shops that are unsold. So are those subjected to this as well? And second question is on the fund management platform. Have you guys looked at the Australia recent $1 billion deal? I'm sure you have some very good friends there --

[Ngiang Hong Chia, executive]

I take your first question first. ABSD, I think Venue Residences [ are clear ]. Commercial are not affected, only resi. So we sold everything. In fact, ABS (sic) [ ABSD ] deadline are very, very far away because most of the new projects we only acquire at the end of last year this year. Only one project is affected, QC. That is due for program, but we have until the next year, May, I mean, to do it. Yes. So I think -- we believe that we can clear most of them by then, yes. So we are quite safe.

[Belinda Lee, executive]

Frank, the other one or...

[Ngiang Hong Chia, executive]

Yes. Even the other 2, the ongoing [ follow suit ]. I think -- and also still quite a distance away, about [ 3 ] years. And now, we only have about 20 of our units left.

[Belinda Lee, executive]

Frank, would you like to address the [ 1b ]?

[Shao Khoo, executive]

Yes. On Australia, if you are referring to the vicinity tie-up with Keppel, I think we didn't look at that firstly, because we are overall generally negative about retail. I think retail in Australia is facing massive headwinds. I think it was already starting to slow down. And with Amazon going in, I think retail will continue to suffer in Australia. So we are generally not positive on retail in Australia. And I think the other issue for us going to Australia currently is that even though, we like the market, we are non-MIT compliant investor, which means that as opposed to an MIT-compliant investor that pays 15% tax, we are subject to 30% tax. So this is something that we are trying to resolve before we can look at Australia a bit more closely.

[Belinda Lee, executive]

Okay. Can I take any other questions from the floor? Yes. Wilson, maybe introduce yourself, please.

[Wilson Ng, analyst]

It's Wilson from Morgan Stanley. Just 2 questions for me. Firstly, following up on the question on fund management. In terms of strategy, it seems like that you're looking to target acquiring platforms. So could you elaborate a little bit more on what kind of scale you're looking at? Is it like $300 million? Is that $1 billion kind of platform? And what kind of market segment you might be more keen on if not Australia? Second question is on New Futura. So I understand that [ 5 ] units have been sold after the cooling measures came in. Could you share these buyers have been subject to the stamp duties or whether or not any discounts are given?

[Shao Khoo, executive]

So I think in terms of platform, obviously, size matters. But what is more important for us is the track record, right? Because obviously, you can buy platforms with great AUM, but if they don't have the track record then obviously, we would have issues building on that AUM. So I think for us, size is not the critical criteria. It's probably the performance of the team and whether there's a cultural fit within CDL itself.

[Belinda Lee, executive]

How about the markets specifically, yes?

[Shao Khoo, executive]

Yes. So sorry. And with regards to the market, I think we are still looking at platforms that are in markets that we are keen in, which are essentially the developed markets. So in Asia, it would be Australia, it would be Japan. And I think, in Europe, we are looking at platforms in the U.K. And we will use the platform in U.K. to expand to different parts of Europe.

[Unknown Executive]

Okay. The [indiscernible] and I think for them have to spend additional 5% [indiscernible] if they like property and if they [indiscernible] and we are very confident that [indiscernible] after the special announcement I said [indiscernible] outcome. And there is still a lot interest coming in personally [indiscernible] value location and [indiscernible].

[Belinda Lee, executive]

Okay. Maybe I'll take David first at the back. David, just introduce herself, please.

[David Lum, analyst]

David Lum from Daiwa. I have 3 questions. The first pertains to Manulife Centre. If you're able to sell that and you mentioned you're close, what type of financial impact will that have on the group? The second question is did I hear right that 40% of the property development profits came from Japan and China? And finally, with regard to the cooling measures, you dwelt on the negative aspects, but is there any positive coming out of it that you could think of?

[Eik Tse Kwek, executive]

For Manulife as well as the rest of PPS, I can't really comment on how big the gain is. But when we first did the PPS 2 structure, I mean, we did have to set aside so-called provision just in case because we weren't sure then what would be our exit values for the 3 office buildings that have been injected in there. So the release of that provision plus obviously, the upside, I mean, will actually contribute to very substantial gains for us when we exit out of just Manulife alone without even talking about the other 2 office buildings will certainly give us a very big boost, I think, to our profits.

With the third one, I thought I already answered your question. You asked if there are any benefits of the cooling measures. Not too many, but the one that I did mention is that it will certainly make developers more cautious about bidding for land and will hopefully moderate some of the GLS land tender prices. Not to mention, probably completely quash the unblocked market. So in a sense, I think they'll be good because there needs to be some sanity that comes back to the land bidding arena. Things have really gotten out of hand over the last 12 months. And even for us, a well-funded big developer, it's been hard for us to really try to properly accumulate land -- a land bank in Singapore at the right prices. So, Yim Ming, want to do the...

[Yim Ming Yiong, executive]

You heard right. For the half year, China and Japan did contribute about 40%. As you know noble countries, we basically recognize upon handover. So this time around for Hong Leong City Center, we recognize quite fairly substantial profit before tax regarding for this -- [ units ] which is basically Phase 2 upon handover. And that's why it's probably lumpy because always a one-time recognition so to speak. But of course, as a way, we continue to sell the units from HLCC. We'll continue to recognize the profits.

[Belinda Lee, executive]

Okay. Donald. Maybe I'll just take Donald.

[Donald Chua, analyst]

It's Donald from Merrill Lynch. I've got 3 very quick questions. First is on your $900 million EBITDA target for next 10 years. So this will be a substantial increase compared to now. Will dividend payout also follow the kind of trend? And why additional $0.02 this quarter and why not like $0.05 or $0.10? What's the thought process behind that payout? That's the first question. Second question then, could you give us more color on the $300 million acquisition that you mentioned in the slides? Which region? What kind of product are you expecting, et cetera? And lastly, more housekeeping. How many percent of -- in terms of earnings recognition, how many percent of New Futura has been recognized for the first half? And when will the Tapestry start to accrue?

[Leng Beng Kwek, executive]

We have done much better than many of you expected. So we thought we'll give $0.02 more dividends, which will indicate to you -- I'm not committing myself, will indicate to you that the next half should be okay. So if I may take this opportunity in case we're short on time. I want you to bear in mind a few points that I think are ready. First, you notice that we have a team of new management. And the new management is there to change some of the culture, the way we do business. And each of them has made their presentation. You can see there's a difference in the new management as opposed to the old management.

Then we have over the years, to be precise about 50 odd years, we have navigated through rough waters and through unexpected measure here and there. And we have not, as yet, incurred a loss, which means that the management execution reaction is very, very, very good. I'm directing all the people in different companies within the group to fix up problems as soon as possible. Example, you have the hotel that basically underperformed a little in terms of operations and because we are going to make the Mayfair as a flagship and that is impacting a lot of profit. We want to do it in time. After that, of course, we have employed a new CEO with 30 years' experience. I spend more than a week working with her what we should do. So she's coming over to review all the operation here. I'm very confident that once we fix up issues such as underperforming, we'll be going forward producing much better returns.

We talk about organic growth, but we also have in mind acquisition growth. We're not saying altogether, we're not going to look to buy. We've done it many times. When people are frightened, we go in. When people are too brave, we say, we get out. Goodbye. Okay. So we've gone through these. You have organic growth. You have acquisition growth. That is important. We have also very interested to see that we are more diversified. Today, actually, we are quite diversified. Sometime here, we couldn't get a profit. But somehow, we get a profit from here. Example, we have EC, they change the rules of the game, we cannot recognize a profit. Now we can recognize a profit when everything is finished. Nobody talk about high-end properties. We are the ones who came out. Never mind, nobody talks about it. We came up and were – and supposedly subject to, if we don't sell, We came up because we knew the design would attract a lot of people. Same thing as Futura, it's our most luxurious development. And can you imagine, the penthouses we sold to 2 foreigners. No Singaporean want to buy. They say I can buy a bungalow. We found a niche somehow in our years of experience. So I'd like to tell you that in some way, we're quite diversified. We have been to Australia. We have been to Japan. We have been to China. Even in China, you can see different district or different provinces. They have different things of doing -- and the way they do things differently. Some parts of the country or the provinces, they're not doing well. Some parts are doing well. Example, Hongqiao. Hongqiao is a place where it is forever doing well. We have quite a bit of investment in Hongqiao. although in terms of size, compared with what fire power we have, it's not that much. But over time, they've gone up in value quite a lot. They're the first one to identify buying bungalows because the government has made statement that no more bungalow houses to be built. We went to Teddington, this is not far from the airport, I think less than 15 minutes, not too far to make switch. If you cannot afford [indiscernible], you cannot afford Chelsea, you cannot afford [indiscernible]. You go to Teddington, where the [indiscernible] I tell you if you have seen the waterfall. the River Thames, it is so beautiful I fell in love with it, not once, twice but many times. If I were much younger, I would buy for my grandchildren, okay? I would buy it also for the [indiscernible], okay? [indiscernible], they're buying they couldn't afford, they buy small parking lots. On the Chinese New Year, last Chinese New Year, I went with the family, I stay in our Marriott Hotel in Pacific Place. For the first time in history, I've seen so many vacation, first Hong Kong, they don't believe in vacation. You see I'm going elsewhere, they're going to stay book 2, 3 rooms, they have privacy, the children themselves play and they go out and eat breakfast, lunch, dinner, and so on and sneak soup whenever. I ask the general manager, I never see you having vacation business like coming in Singapore. He say, "This is a niche, a new niche. We can make very good profit out of it." In other words, you have to be thinking out of the box. You have to be with this subtle work. Once you can think of something that is different, once you can find a niche, one you can diversify, one you can navigate through rough water and calm water, I think the world is yours. It depend on how fast we can run. For me, I've always say, you should have done it yesterday instead of today. Some people laugh at me. You don't think of all the pros and all the cons. You think of only one basic pro, one basic con. You make a decision. If the -- the investment doesn't meet your hurdle rates. Then you got to think of ways how to meet your hurdle rates. Maybe you need to sacrifice for short term. You start to think in terms, this doesn't meet my hurdle rates. I don't want to buy. You lose opportunities.

So we have a lot of situation where they stick to the old, traditional formula. And I'm telling you that if this is the case, then you're not going to make a lot of progress. So my new team of management, including some old ones, they are very good, okay? I will say they are very good compared to before. I'm trying to condition them and they are learning fast. If they don't learn, they automatically do it by instinct.

So I just want to summarize and say that we have for example, Chinese buyer. It's difficulty -- it's a great difficulties for them to make money outside. But you must identify if you have businesses outside China. They are listed in Hong Kong. They have money. They have money. You need to find them, and get them in. I'm very proud that the CEO tied up with E-House because I met E-House long time ago. They are better than any of our real estate broker. They are very professional. Their contacts are wide and varied. So how can we make use of them to help us to sell? I think this is key. You have people like Ali Baba who is also a shareholder. We are chosen -- we are very proud to be chosen. Then we have this co-working. We work in [ U.S. ] It's becoming a fashion, okay? Big company, they are investing in it. So this district, we are fortunate to be able to be in it. I met the founder. I wanted him to do more than that. You see I'm concentrating so much on my -- this co-working. I think I can apply this co-working principle in other sector that can also bring me a lot of benefit. Maybe I'm too early in my days. As I get older, I become too early.

So anyway, I think the long and short of it is that we created PPS. It's something that like -- the joint venture with Wing Tai in Ardmore Park. Actually, I was on the verge of selling the 2 whole block as a group profit. Unfortunately, Chinese government control remittance of money going overseas. So as a result, I say never mind because if you check the caveat, the caveat there varies from [ 3,006 to 4,006 ]. We don't [ pay penalty yet ]. So this is again another way of doing things differently and you have to do it differently. Otherwise, you will be left there. So, so much. Unless you have other question, please go on.

[Yim Ming Yiong, executive]

So, Donald, just to continue the other questions for New Futura, I think the [ slide of table ] we have sold about 92 units to-date, out of which [ as the ] first half which is June 30, 2018, we probably recognize about 60% to date. As for table 3, again, we have sold about 488 units to date. That's about 56% sold. Tapestry has really progressed. It's currently probably reaching single-digit kind of progress percentage of completion. So we probably recognize as advances is stages of construction. As for the last one, sorry, on the $300 million acquisition, you come out of the quarter. I think we are bound by confidentiality. Nothing much we can really disclose at this moment.

[Belinda Lee, executive]

Okay. Maybe I take the last few ones. Yes. Brandon, maybe introduce yourself.

[Brandon Lee, analyst]

Brandon from JPMorgan. Just a couple of questions. Can you actually clarify for us for the $900 million EBITDA that you're targeting to reach? How -- what's the split between fund management fees, including performance as well as from core properties? And the second question I have is, can you give us more color on Jennifer Fox potential strategic review? Like is it just looking at operations? Or are you guys looking at potentially changing the business model to more asset heavy to more franchising or management contracts?

[Leng Beng Kwek, executive]

Maybe I should answer this question, because I've been spending quite a bit of time with her. Before she joined us, she worked from 7 a.m. to 9 p.m. Show how committed she is. She is looking at various aspects how to improve the hotel performance. She's very strong in branding, marketing and sales. And we acknowledge, compare with a core, Marriott and all these -- our reservation system is not as strong. Our loyalty program is not as good. So we are looking into these. We are looking into these, how to improve -- how to formalize this as an example. So everything is being revamped. We also look at acquisition. If your organic growth is low, we're looking at -- in fact, we have been looking at a couple of acquisition whether we could get it or not because for hotel, it's a class of asset everybody wants. I was asked by Jones Lang, you are the one who started all these hotel. Now your competitor is following you. What are you going to do next? I said, "Should I tell you?" So I think apart from that, she's very driven in terms of getting things done. The only thing I can say or criticize is she wants to get things done too quickly -- quicker than what I want her to. So sometime, I say that if you don't have enough information, you make a decision and that decision may not be the right decision. She's starting to understand my culture. I believe in my entrepreneurship and many years of experience not as professional hotelier, but having in-depth knowledge of hotel together with a professionalism having worked in big hotels like across Swissôtel and so on. And she actually managed the region hotel in Hong Kong for 2, 3 years, starting as a General Manager at one point of time. So she is very comprehensive and more importantly, she has recognized that we need some new people with new fresh idea. And she's already recruiting, I think, already 4. They're quite dynamic. I talked to them. I spent a lot of time, and I talked to them. And I think I'm quite happy with it. And she's coming here again to go through every hotel. Why you are not performing as well as I want you to perform. How can I help you?

So this is, I think, very important for a CEO. You get a wrong CEO, they crash it to the ground or they may underperform. Today, competition is keen. Of course, today, we also face in the hotel industry, we face a lot of shortage of people rank and file departmental heads, general manager, even CEO. We are leading with the issue at every level. We have, for example, in M Social, you may not know when have your breakfast day you'll be surprised, they can make sunny-side eggs. They can make omelet. They can make also other items. We haven't yet used a robot as a waiter, okay? But they are not pretty that you see in Japanese bank. The robots are very beautiful girl, features but our robot is not as pretty. Who cares about pretty or not pretty. You want to be served properly. That's all. That’s all I want to clear to you.

[Eik Tse Kwek, executive]

Brandon, I take your other question, which was about the $900 million EBITDA. It's, I think, difficult for us to really say with any -- in any concrete nature how we're going to derive the extra $300 million, assuming we're at $600 million now. I mean, so the [ climb not ] $300 million. But if things work out the way we want, Frank has set a very ambitious target for himself. He's saying in 10 years' time, he will try to get us to an AUM of USD 12 billion, right? So let's say he gets there. I would say then out of the extra $300 million of recurring EBITDA I require, I mean, he's already taken care of, at least, a third of that buyer fees, if not more. And really, 2/3 of that will need to come from deploying capital both combination of our own balance sheet, as well as funds that Frank will eventually raise and obviously will be part of the investment of those funds, too. So we'll be deploying those funds out, too. So the combination of those 2 will get us there.

[Belinda Lee, executive]

Okay. Maybe for the time, I'll just take [ Gula ].

[Unknown Analyst]

Yes. [ Gula ] from [ Edge ]. Chairman, this question for you. Could you sort of give a little bit more detail about what you plan to do with PPS 1? Are you going to sell the units at W separately and the hotel and the retail separately? Was that what you were saying earlier? And the second question is on the U.K. market, could you remind us of how much you've invested in the U.K. market? And what your expected returns are likely to be, given the Brexit and the other things that have happened there?

[Leng Beng Kwek, executive]

PPS 1 is -- I think you're referring to Sentosa. Unfortunately, Sentosa, in my opinion, would be the last place to go up in prices. It was supposed to be for the rich and famous, but then it turned out to be the last place to come up. These are really moving. We believe that in the longer term, Sentosa will be good again. The government having spent so much money to make it for the rich and famous, I don't believe they want to throw away. If I can buy it cheap today, I'd buy a lot in Sentosa because this is the last place they will go up, okay, in my opinion.

And then as regards to the U.K. market, the U.K. market our biggest investment is in Mortlake, which is not too far from Teddington. I think it's 1 million square feet if I'm not mistaken and they are applying for permission. And then in U.K. they have decent live in, they have also neighbor, they can complain. Generally speaking, you can make profit about 25% in U.K., but I'm banking on the fact that everybody knows U.K. potential. You see a lot of development there. Some of them are rushing, some of them are stopping development. We have approval on the [indiscernible] road, which I want to expand, this makes [indiscernible] hotel which we also want to create something exciting there. I have actually planned incorporating the 2, the carpark in itself. We have approval for apartments and we have approval for a cafe or a gym or even for the old people, what they call assisted living. That choice -- that property is very, very great because you walk only 3 minutes to Harrods. And in Hans Place, by the way, Hans Place is also near Harrods. We have an office converted into duplex, I think, 3 units. Belgravia, we have, I think, 6 units. It's the only freehold property there. Of course, you can apply leasehold for residential leasehold to become later into freehold. But then you have to pay a big sum of money. We have created duplexes and there will be people who are interested. Same everywhere, when market is a bit quiet, some newspaper will say because the owner is asking ridiculous price, they say, oh, London property fell 20%. It cannot be so much 20%. And they ask for more and of course, when they are desperate, they reduce the price. I believe is a world center. The Brexit problem will be resolved. The British are very clever. Actually, their research are very good and they have also stem cell development. And they got fintech, they are the financial center. Some of them bankers will move to Frankfurt, will move to even Amsterdam. But many of them will stay put. Britain has always been known as a great financial center. Britain is known to be a place, whether you like it or not, you always like it. You go to U.S., one city is more or less the same. In U.K., probably because many countries were colonies before. So we always look at U.K. for lower education up to a level, and you see then U.K. has a lot of invention. People, some of them are very good, some of them are not as good just like every country. So I think our investment in U.K. is not a lot because we do not commit in such a way that they pay 10%, 20% and the market collapse and get nothing because the buyer will pay you. What are you going to do? Therefore, they have to pay sooner they can. We are aware, there's no such protection as in Singapore, because I was involved in it and that we pay by stages, signing contract, 20%; [ planning ] 10%; up to year one and another 10% or 20% and so on. So if the developer goes bust, this amount of money is kept in the special project account. Unless bankers will release it, you cannot touch -- the developers cannot touch it. There's no such scheme in U.K.

So we have not been in U.K. but we are growing and we take our time. Our priority is quickly have more recurring income in terms of the hotel. I'm still looking at hotels. Don't forget, we have also one joint venture, First Sponsor. We're going to make good money. We have been making good money. I think we hardly mentioned about it. I don't know why. But it's -- we see [ 2% ] joint venture with Singaporean where he's been there not in hotel business, where he's been there in other types of businesses. The relationship is very close. We respect each other.

[Eik Tse Kwek, executive]

So [ Gula ], just to follow on for the question on PPS 1 for W. I mean, our chairman is absolutely right. I mean, if you look at it, there's always a lag effect between Sentosa and the main island. I mean, even though prices have gone up on the main island quite substantially, but Sentosa hasn't moved up all that much. And in fact, now, obviously with the cooling measures, I think you'll definitely see some so-called -- some pressure or some plateau in their prices on Sentosa. So therefore, I think it's a good time, I think, for us to reevaluate where we stand and to keep discussing with partners as I mentioned for the residential side or for the hotel plus retail side. I mean, we're not under any pressure to either sell or to buy back. So it's really discussing our partners and figuring out what's the best solution to resolve this. But definitely, I think now would be definitely the wrong time to launch W Residences because, yes, the prices are still quite depressed there.

[Leng Beng Kwek, executive]

One of the reason I recall now is that in the old days when Singapore was going through financial [ development ] difficulties and the banks were persuaded by MAS to structure the loan in such a way that if the borrower is paying 4,000, you try to reduce to 2,000, have a balloon payment. But in this particular instance of recent year, the banks ask -- auction it off and then there is no more land for development. So to me, it's a good buy because when you have no more land, what does it mean? It means that place should prosper. But unfortunately, you have some Chinese who bought bungalow, they got to get out for some reason. Fire sales, the bankers' mortgages sales. So the result of all this is that nobody think of Sentosa. I can only think of one good reason, when you have no more land to build, there is a chance for you to go and hunt for bargain views. And in the end, you should be rewarded based on disciplines for 45, 50 years I've gone through.

[Belinda Lee, executive]

I got to bring this to a close, but Cheryl asked for one last question so I'm going to give that opportunity to her. As -- this would be our last question for the session.

[Cheryl Lin]

You mentioned that [indiscernible]

[Eik Tse Kwek, executive]

I think suffice -- needless to say, I mean, most developers in the last couple of years have been designing for smaller units. I mean, these days with per square foot prices rising, I mean, it's very much a quantum game. I mean -- and making apartments affordable to people. But at the same time, I mean there's also been a lot of noise about shoebox units, Mickey Mouse apartment stuff. So not every location is suitable for very small units. Certain locations, if we cater more for families, we may be designing more towards dual key or triple key or other sorts of formats. I mean -- whereas certain locations, like for instance, I mentioned earlier, Handy Road, I think you don't get a lot of family wanting to stay necessarily in that area. So that really targets your single working professional or married working couple. I mean, that -- I think you can do smaller units and you'll still be accepted and keep the quantum affordable. So it really depends and certain locations even in the East Coast, right, we've done our research not -- is not necessarily that all smaller units are the first ones to fall off the shelf. Some of the projects that have launched, I mean, the 2 bedders and 3 bedders may be the first ones to actually sell. And again, so it really depends on the demographics of the area. But yes, in answer to your question Cheryl, I mean generally, in the last couple of years, developers have veered towards smaller size units and it is the trend now. I mean, you have to keep it, the quantums affordable for buyers. Thanks.

[Belinda Lee, executive]

Okay. On that note, I understand it's lunch time. There are some refreshers outside. So, ladies and gentlemen, we've come to the end of our briefing. Thank you very much for your kind support. And for all Singaporeans, Happy National Day weekend. Thank you.