In 2009, the global economy endured its worst recession since World War II. Policy makers around the world responded with massive fiscal intervention and this unprecedented and coordinated action helped economies around the world to stabilise more rapidly than expected. Singapore's economy was not spared and it registered a contraction of 2.0% in 2009. This was, however, a much less adverse outcome than the 6.0% to 9.0% contraction anticipated at the onset of the year¹.

Delivering in Challenging Times

Against the backdrop of a very challenging economic climate, CapitaMall Trust's (CMT) quality portfolio of predominantly necessity shopping malls again demonstrated its resilience, enabling it to report a good set of financial results for the year ended 31 December 2009. CMT achieved a distributable income of S$282.0 million which was S$43.6 million or 18.3% higher than its distributable income of S$238.4 million for 2008. The improved performance was mainly due to the full-year contribution from The Atrium@Orchard which was acquired in August 2008, Sembawang Shopping Centre which re-opened in December 2008 and the completion of the asset enhancement works at Lot One Shoppers' Mall. Positive reversions from new leases and the renewal of existing leases also contributed to CMT's improved year-on-year results.

CMT's distribution per unit (DPU) for 2009 amounted to 8.85 cents which was 17.7% higher than the restated DPU of 7.52 cents in 2008 which took into account the effects of a rights issue completed on 3 April 2009.

As at 31 December 2009, CMT's unit price closed at S$1.80, up 13.2% from S$1.59 as at 31 December 2008, as global equity markets rebounded on the back of record low interest rates and financial liquidity from stimulus packages. Based on the closing price of S$1.80 per unit, CMT's DPU of 8.85 cents for 2009 translates to a distribution yield of 4.92%. This was approximately 220 basis points higher than the 10-year Singapore Government bond yield.

CMT's malls are strategically located in catchment areas with an established or growing population and are well-connected to public transportation systems. As such, despite the challenging operating environment in 2009, shopper traffic at CMT's malls declined marginally by 1.2% compared to 2008. The gross retail turnover of CMT's tenants has also dipped slightly by 2.7% in 2009 versus 2008.

Optimising Asset Performance

Optimising Asset Performance In the fourth quarter of 2009, CMT commenced asset enhancement works at Raffles City Singapore (RCS) and Jurong Entertainment Centre (JEC). These two projects are expected to contribute to DPU growth in 2011 and 2012 respectively.

Raffles City Singapore

The enhancement works at RCS involves the re-configuration of the Basement 1 space. We will also connect the existing City Hall mass rapid transit (MRT) station to the new Esplanade MRT station via a seamless shopping experience through Basements 1 and 2 of RCS. The Basement 2 link will provide a short underground connection between City Hall MRT station and the Esplanade MRT station. When this connection is completed, there will be three train lines bringing shoppers to RCS.

Of the additional 12,180 square feet (sq ft) of net lettable area (NLA) which will be created in the Basement 2 link, an estimated 63.0% of the area has already been pre-committed as at end-January 2010. The enhancement works will result in CMT incurring capital expenditure of approximately S$33.2 million and are expected to generate additional net property income (NPI) of approximately S$2.7 million per annum. This would enable CMT to achieve an expected ungeared return on investment (ROI) of 8.0%.

Jurong Entertainment Centre

Asset enhancement works for JEC have commenced and the new larger mall is slated to be ready in the first quarter of 2012. One of its main attractions will be an Olympic-sized ice skating rink to be located on the third storey of the building. The new mall will also feature a cineplex, supermarket and food court.

Upon completion of asset enhancement works, JEC will have retail floor space measuring over 200,000 sq ft in NLA - almost double the size of the original JEC building. The new mall will also benefit from the Government's plans to transform the Jurong area into a vibrant commercial hub and regional centre within the next 10 to 15 years. The capital expenditure for this initiative is estimated at S$200.3 million. It will produce an expected incremental NPI of approximately S$16.1 million per annum, which translates to an ungeared ROI of 8.0%.

Enhancing Financial Flexibility

To strengthen our balance sheet, CMT took the lead and was the first Singapore real estate investment trust (S-REIT) in the year to undertake a rights issue to reduce our debt in February 2009. The fully underwritten renounceable 9-for-10 rights issue was over-subscribed with approximately 116.1% take-up rate, including excess rights applications. Through the capital raising exercise, which raised net proceeds of approximately S$1.2 billion, CMT's gearing was reduced from 43.2% as at 31 December 2008 to 30.5% as at 31 December 2009.

Engaging Tenants

To help our tenants tide through the recession, we worked closely with them and aligned the trade mix in some of our malls in response to changes in consumer demands. When the Singapore Government announced a 40.0% property tax rebate for commercial landlords, we passed on the full rebate to our tenants. We also implemented a host of measures to help our tenants, ranging from restructuring of leases, reviewing of space efficiency to working with tenants on various marketing and promotional activities to drive sales in our malls.

In 2009, our property management team also organised five Biz+ Series events for our tenants. The objective of the events was to provide our tenants with regular bite-sized programmes such as talks, seminars and events that can improve and add value to our tenants' businesses. The Biz+ Series events included talks on how to leverage on the Singapore Government's S$600.0 million SPUR (Skills Programme for Upgrading and Resilience) training programmes; how to tap on financing under the Government's Bridging Loan Programme; how to make use of alternative financing through funds provided by venture capitalists interested in investing in retail businesses; and tapping on the power of branding and marketing for retailers in times of economic slowdown. The fifth Biz+ Series programme was an overseas study trip for our food & beverage tenants to Chengdu, Shanghai and Beijing. The Biz+ Series programmes were well received by our tenants and we will continue to organise more of such value-adding events.

Shopper traffic at CMT's malls remained strong in 2009, with many of the malls enjoying high monthly footfalls of between 2.0 million and 3.0 million. For the full year, approximately 214.4 million shoppers passed through CMT's malls. CMT's committed portfolio occupancy was 99.8% as at 31 December 2009, a tangible sign that CMT's malls remained popular with retailers. Rental renewal rates for CMT's overall portfolio also registered a growth of 2.3% over preceding rental rates, despite the challenging operating conditions in 2009.

Growing the Portfolio

On 9 February 2010, CMT announced the proposed acquisition of Clarke Quay for $268.0 million. Clarke Quay is an integrated food and beverage, entertainment and lifestyle riverfront development. It is located along the Singapore River, and at the fringe of Singapore's Central Business District. It is within walking distance of the Clarke Quay MRT station, making it easily accessible by public transportation.

The acquisition at a property yield of 5.9%² is expected to be yield-accretive, thereby allowing Unitholders to enjoy a higher DPU due to the acquisition of Clarke Quay at a price reflective of the attractive cash flows that it generates. It will enlarge CMT's asset size to approximately S$7.6 billion³ from S$7.4 billion as at 31 December 2009, strengthening CMT's lead as Singapore's largest REIT by asset size.

An extraordinary general meeting will be held on 14 April 2010 to seek Unitholders' approval for the proposed acquisition.

Leading the Way

A year on, business sentiment has improved and the general mood in Singapore is one of cautious optimism. Global economic developments suggest that the recession has ended in many countries. Nonetheless, the recovery in the advanced economies remains fragile, and the return towards pre-crisis levels of economic activity is likely to be gradual.

Singapore's Ministry of Trade and Industry expects the economy to grow by 4.5% to 6.5% in 2010 and there are increasing signs that the retail sector has turned the corner. The improving economy and the opening of two integrated resorts in 2010, which are likely to bring in more tourists, will have a positive impact on the retail sector. The opening of additional Circle Line MRT stations this year will also benefit CMT's malls such as Junction 8, Plaza Singapura and RCS which are located near Circle Line MRT stations.

In 2010, we will focus on sustaining CMT's organic growth by actively managing lease renewals as well as carrying out the asset enhancement works at RCS and JEC. We will also continue to explore opportunities for yield-accretive acquisitions. In addition, with CMT's deposited property of approximately S$7.4 billion as at 31 December 2009, we also have the option to invest up to S$740.0 million in greenfield development projects.

Since its initial public offering in 2002, CMT has led the way in creating value from retail properties. As the first and largest REIT by market capitalisation and asset size in Singapore, we believe that CMT has the winning combination of scale, quality portfolio and proactive asset management. This has put CMT in a good position to capitalise on growth opportunities which may arise from the economic recovery.

Acknowledgements

Mr Lui Chong Chee and Mr Olivier Lim stepped down as Non-Executive Director and member of the Audit Committee respectively on 23 February 2010. Mr Lim remains as a Director on our Board. We would like to thank them for their contributions.

Mr Lim Beng Chee also stepped down as Chief Executive Officer and Executive Director on 25 November 2009. We would like to thank Mr Lim who has guided CMT since 1 November 2008 and helped it to successfully ride through the financial crisis in 2009. We are glad that Mr Lim has agreed to continue to be a Director on our Board.

We would also like to record our appreciation to our Board of Directors for their wise leadership and Unitholders, business partners, tenants and shoppers for their continual support which has enabled us to successfully navigate through a very difficult 2009.