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CapitaMall Trust (CMT) delivered a good set of results to Unitholders in 2008 despite the fast deteriorating global economic conditions. Singapore was not spared from the unprecedented financial crisis. The country entered into technical recession in the second half of 2008 and registered an economic growth of a mere 1.1% for 2008, compared to 7.8% in 2007.
Notwithstanding a weakening local consumer sentiment, CMT registered a distributable income of S$238.4 million in 2008, a yearon-year increase of 12.9%. Correspondingly, CMT's distribution per unit of 14.29 cents for 2008 was 7.1% higher than 2007. Asset enhancements and active leasing continued to be the core growth drivers for CMT in 2008.
Towards end-2008, Lot One Shoppers' Mall (Lot One) welcomed shoppers with its fourstorey retail extension measuring approximately 16,500 square feet (sq ft) which houses more than 50 new tenants. Separately, Sembawang Shopping Centre (SSC) re-opened its doors to shoppers in December 2008 following major redevelopment works. The latter mall's layout was enhanced and over 42,000 sq ft of Gross Floor Area (GFA) was decanted from residential GFA to create more prime retail space. The completion of these two major enhancement projects, together with other works undertaken at Bugis Junction and Plaza Singapura, will create an incremental annual net property income of approximately S$10.0 million.
CMT completed the acquisition of The Atrium@Orchard (Atrium) at a purchase price of S$839.8 million in August 2008. Atrium, a mixed-use development comprising two Grade-A office towers and a small retail component, is adjacent to Plaza Singapura, another CMT property. Both Atrium and Plaza Singapura are strategically sited along the Orchard Road retail belt and above the Dhoby Ghaut Mass Rapid Transit (MRT) train interchange station, which is one of only two interchange stations in the central business district with three train lines - currently two train lines and the impending Circle Line which will be progressively operational from mid-2009. Over the longer term, the acquisition of Atrium is expected to provide a significant value creation opportunity, as the future planned integration of Atrium and Plaza Singapura will create a combined prime frontage of approximately 170 metres. The combined retail net lettable area of the two developments will be over 600,000 sq ft, making it one of the largest retail developments along Orchard Road.
On the leasing front, rental renewal rates for 2008 registered a moderate growth of 9.6% over preceding rental rates, which translates to an average annual growth rate of 3.1% over a typical three-year lease term.
The gross retail turnover of CMT's portfolio of tenants grew 5.8% in 2008 versus 2007. Majority of retail trades continued to fare well, although there were some signs of weakening in discretionary spending towards end-2008. As CMT's largely suburban retail properties are strategically located near MRT/Light Rail Transit (LRT) stations and bus interchanges with captive population catchments, most of these properties continue to register a high monthly footfall of between 2.0 million and 3.0 million and enjoy close to 100.0% occupancy.
The global macro-economic environment is expected to remain weak in 2009. Singapore's Ministry of Trade and Industry (MTI) expects a sharper downturn this year and forecasts that Singapore's gross domestic product growth is likely to be -5.0% to -2.0% in 20091.
To ride through the turbulent times ahead, we will focus on proactive asset management, strategic tenant engagement and prudent capital management in 2009.
- CMT has a portfolio of well-located retail properties with strong captive markets. More importantly, 78.6%2 of the malls in the portfolio cater to consumers' basic necessity needs, for which sales are expected to remain healthy. In addition, based on past statistics, suburban retail rental rates have shown to be fairly resilient to economic slowdown.
- Based on committed leases as at 31 December 2008, gross rental revenue locked-in for 2009 would comprise approximately 87%3 of 2008's total gross revenue.
While we have confidence in the quality of our portfolio, we will continue to prepare ourselves to weather the storm ahead. Driving shopper traffic to our properties to help our tenants grow sales remains one of our top priorities. We also need to stay vigilant and be nimble to align the trade mix promptly with the fast changing environment.
Our strong and established relationships with our tenants set us apart from our peers during these trying times. We will continue to stay close to our tenants, understand their business issues, work with them to improve their business viability and focus on growing sales together. Over the past six years, we have built a comprehensive database of our tenants' sales and now have a clear understanding of the sustainable occupancy costs4 for each and every trade.
Regardless of the state of the economy, there will be certain tenants who ride the various economic cycles better than others. Similarly, our statistics suggest that some trades are performing better during the current crisis. For the weaker tenants, we have in place a slew of customised measures to help them ride through the challenging period ahead. The Singapore Government had announced in its 2009 Budget a 40.0% property tax rebate to commercial landlords. We are pleased to inform that the Board has endorsed the full pass through of this rebate to our tenants.
On 9 February 2009, CMT announced the fully underwritten renounceable 9-for-10 rights issue to raise gross proceeds of approximately S$1.23 billion (Rights Issue) at an issue price of S$0.82 per new unit in CMT. The gross proceeds will be used principally to repay borrowings due in 2009. The Rights Issue is expected to reduce CMT's gearing5 from 43.2% as at 31 December 2008 to 29.1%6, strengthen CMT's balance sheet and credit profile, and enhance its financial flexibility to capitalise on opportunities. Moody's Investors Service has affirmed CMT's corporate rating of 'A2', which is the highest amongst Singapore Real Estate Investment Trusts (REITs).
The Rights Issue was attractively priced at a discount of 43.4% to the closing unit price of S$1.457 per unit in CMT on 6 February 2009. This translates to a yield of 10.2%8, which represents an all-time high yield spread of over 800 basis points for CMT over the 10-year Singapore Government bond. The Rights Issue was approved at the Extraordinary General Meeting on 2 March 2009 and the Rights Units are expected to commence trading on Singapore Exchange Securities Trading Limited on 3 April 2009.
Mr Wen Khai Meng, Mr Pua Seck Guan and Mr Hsuan Owyang stepped down as Non-Executive Director, Executive Director and Chief Executive Officer, and Chairman of the Board as at 24 November 2008, 1 November 2008 and 1 January 2009 respectively. We would like to thank Mr Wen, Mr Pua and Mr Owyang for their invaluable contributions. In particular, we wish to express our deep appreciation to Mr Owyang and Mr Pua, who have provided guidance and leadership respectively, to CMT since its inception in 2002.
We would also like to thank our Board of Directors, staff, Unitholders, business partners, customers, tenants and shoppers for their commitment and strong support in 2008.
As Singapore's first and largest REIT by market capitalisation and asset size, we believe that it is important to uphold the fundamentals of a REIT - to provide stable and sustainable income to Unitholders. We remain committed to distribute 100.0% of our distributable income to Unitholders and are confident of successfully riding through the unprecedented times ahead with the continued support of all our stakeholders.
- Based on MTI's announcement on 26 February 2009.
- Based on committed gross revenue of Tampines Mall, Junction 8, IMM Building, Plaza Singapura, Bugis Junction, SSC, Hougang Plaza, Lot One, Bukit Panjang Plaza and Rivervale Mall for the
month of December 2008.
- Based on committed leases as at 31 December 2008 and assuming (i) all leases due for renewal in 2009 are not renewed and left vacant; and (ii) all variable income including gross turnover rent,
carpark income and other income are zero. Excludes CMT's 40.0% interest in Raffles City Singapore.
- Occupancy cost is defined as total rental over gross sales turnover of tenants.
- The ratio of the value of total borrowings and deferred payments (if any) to the value of the gross assets of CMT and its subsidiaries (CMT Group), including all its authorised investments held or
deemed to be held upon the trust, under the trust deed dated 29 October 2001 as amended, varied, or supplemented from time to time.
- Assuming the borrowings are repaid immediately after completion of the Rights Issue and after adjustment for the S$15.0 million revolving credit facility (RCF) repaid on 3 February 2009 and the
S$15.0 million RCF expected to be repaid in March 2009.
- The closing unit price of S$1.45 per unit on 6 February 2009 was the last trading day of CMT's units prior to the announcement of the Rights Issue.
- Based on pro forma distribution per unit of 8.40 cents for Full Year 2008 after the Rights Issue, divided by the Rights Issue price of S$0.82 per unit.
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