THE MANAGERMessage to Unitholders

Dear Unitholders,

China’s retail sales of consumer goods grew by 9.0% to RMB38.1 trillion in 2018, sustained by consumption in major cities that saw an increase in urban disposal income and expenditure per capita of 7.8% and 6.8% respectively. The growth was achieved in spite of challenges to both its domestic and the global economy, including the China-US trade war that overshadowed the year. To encourage consumption, China implemented a series of import tax cuts and fiscal measures to stimulate the economy. Demand for retail space remained resilient, underpinned by domestic mid-tier brands, food and beverage outlets and international fashion labels establishing broader networks in China.

Amidst the uncertainty of the global economy and volatility of the Chinese Renminbi, CRCT was able to stay on course, riding on the momentum of China’s domestic demand and the successful execution of our well-thought-out strategy to deliver a positive set of results in 2018.

Resilient Financial Performance

In FY 2018, CRCT achieved a gross revenue of S$222.7 million and net property income of S$147.4 million. Distributable income reached S$99.7 million, 9.4% higher than FY 2017. The growth was attributable to newly acquired Rock Square as well as the improved performance in CRCT’s core multi-tenanted malls. Distribution per unit increased 1.2% year-on-year to 10.22 cents on an enlarged unit base1 at the end of FY 2018.

Our ongoing strategy to optimise CRCT’s assets and create rewarding shopping experience for shoppers has served us well. Portfolio tenants’ sales and shopper traffic expanded by 18.8%2,3, and 19.4%2 year-on-year respectively in 2018. As at 31 December 2018, portfolio occupancy reached 97.5% with a weighted average lease expiry of 2.9 years4. During the year, 663 leases were signed or renewed at an average rental reversion of 10.9%. CRCT’s investment property value, including its 51.0% interest in Rock Square and CapitaMall Wuhu, has been assessed by independent valuers to be worth RMB13,993 million as at 31 December 2018, representing a 17.8% year-on-year increase due to the inclusion of Rock Square.

Disciplined Portfolio Reconstitution

As part of CRCT’s portfolio reconstitution strategy, the acquisition of Rock Square at RMB1,703.85 million, through a 51:49 joint venture with CapitaLand, was completed in January 2018. The accretive acquisition strategically diversified CRCT’s footprint into another Tier 1 city within CapitaLand’s core city clusters. It also enabled CRCT to leverage the Group’s established presence in Guangzhou and enjoy leasing synergies across our portfolio.

Rock Square has strong growth potential, with over half of the mall’s total rent up for renewal between 2018 and 2020. Since the completion of the acquisition, we have achieved more than 20.0% rental reversions over four consecutive quarters as well as double-digit year-on-year increase in average sales per square metre (sq m) for specialty tenants in 2018. Leveraging on our strong leasing network, we enhanced Rock Square’s tenant mix by introducing 25 prominent new brands to Haizhu District, creating a compelling positioning for the mall.

In January 2019, CRCT entered into a cooperative framework agreement with unrelated third parties for a bundle deal to acquire a property in Yuquan District, Hohhot, Inner Mongolia, China, at an agreed property value of RMB808.3 million (S$159.6 million) and to transfer its entire interest in a company that holds CapitaMall Saihan in Hohhot to a party related to the vendor of the new mall at an agreed property value of RMB460.0 million (S$90.8 million)6.

By swapping CapitaMall Saihan for the new Yuquan mall, we are effectively recycling our capital to obtain a more strategically located property that is newly built and enjoys direct connectivity to the upcoming metro line. The new mall has stronger growth potential as it is double in size and has a longer balance lease tenure of an additional eight years, as compared to CapitaMall Saihan. Leveraging on the strong track record of the local team, we intend to strengthen our presence in that emerging catchment by transforming the new mall into a one-stop shopping destination with enticing retail concepts catering to the lifestyle needs and aspirations of the city’s rising middle class.

Innovative Asset Enhancement

The dynamic Chinese retail industry is constantly evolving as consumers seek shopping experiences that are both engaging and synergistic with their lifestyles. To respond to the changing needs, we completed several asset enhancement initiatives (AEI) during the year, with the objectives of improving productivity of the spaces within our malls as well as providing optimal tenant mix.

After recovering 4,700 sq m of space from a former anchor tenant on level 4 of CapitaMall Wangjing, we introduced higher-yielding specialty stores to create a more immersive retail experience for shoppers. This led to a strong rental reversion of 15.7% year-on-year for CapitaMall Wangjing in FY 2018. Collaborating closely with our business partner Ucommune, a leading coworking space operator, we successfully created 500 sq m of income-producing leasable area on level 8 to meet their needs. This strategic move will increase rental income at the floor by around 50.0% in 2019.

At CapitaMall Xinnan, we reconfigured about 37.0% of Basement 1, attracting popular brands that resulted in the doubling of gross rental income for the zone. It was a timely enhancement that brought about rental reversion uplift of 17.9% year-on-year for the entire mall, reflecting the demand for retail space in one of Chengdu’s most established shopping belts. Similarly, at CapitaMall Grand Canyon, we increased the net lettable area on levels 4 and 5, by removing the escalators and reconfiguring the floor area, which allowed us to offer new dining options and experiences.

CapitaMall Qibao was repositioned to enhance its attractiveness for young parents and children. We reorganised the tenant mix with an emphasis on education and learning to appeal to young families. The rooftop garden was expanded to accommodate animal and vegetable farms, a large screen cinema and an enlarged event space to host interactive activities for children. The enhancement provided memorable shopping experiences and increased the families’ dwell time at the mall.

Engaging Shopping Experience

To stay ahead of competition, we took proactive measures to embrace the use of digital technology and roll out interesting events to attract shoppers and create stickiness to our malls.

Exciting marketing events were organised throughout 2018 to draw shopper traffic and increase the visibility of our malls, such as the large-scale B.Duck display at Rock Square, live performances and pop-up stores at CapitaMall Wangjing and popular music concerts at CapitaMall Saihan.

Increasingly, we are tapping on online marketing campaigns and gamification techniques to engage shoppers. At CapitaMall Xizhimen and CapitaMall Wangjing, we partnered a popular social media app to set up booths where shoppers could participate in multi-player games and share their experiences on social media. These marketing initiatives strengthened our malls’ branding and social media engagement.

Prudent Capital Management

As part of our disciplined capital management to diversify funding sources, we successfully completed maiden issuance of S$130.0 million MTN due 2022 at a fixed interest rate of 3.25% per annum. The MTN are issued under the CRCT’s S$1 billion Multicurrency Debt Issuance Programme.

Through proactive management efforts, we have refinanced all debts due in 2019 ahead of time. 80.0%7 of CRCT’s total debt is on fixed interest rates, providing certainty of interest expenses. We have strengthened the balance sheet and maintained a low gearing ratio of 35.4% that is well below the 45.0% ceiling set by the Monetary Authority of Singapore. To mitigate the impact of foreign currency fluctuations, approximately 80.0% of CRCT’s distributable income has been hedged into Singapore dollars. This put us in a strong financial position to pursue acquisition opportunities to drive new growth while we continue with our active asset management strategy to unlock more value from existing assets.

Striving For Excellence

As the first China shopping mall REIT to be listed in Singapore, CRCT always strive to maintain a high level of corporate governance, transparency and accountability, which include active board oversight and timely communication with Unitholders and key stakeholders. We are honoured that these efforts have been recognised by the Securities Investors Association Singapore, who awarded us the joint winner of the Shareholder Communications Excellence Award (REITs & Business Trusts) at its 19th Investors’ Choice Awards in 2018.

To further improve our engagement with Unitholders, tenants, shoppers and other stakeholders, we launched a new look for our website that offers refreshing content and features as well as a more intuitive user experience.

CRCT’s malls also received industry recognition: CapitaMall Xinnan won the Commercial District Advancement Award at the 7th Annual Chengdu Retail Awards, and CapitaMall Wangjing clinched the Best Asset Enhancement Award at the Shopping Mall Awards 2018 organised by the China Chain Store & Franchise Association.

Journey Ahead

China remains one of the world’s fastest growing consumer markets. While China’s GDP is projected to grow at a slower pace in the short term, retail consumption is expected to stay robust in the years ahead. Underpinned by a growing base of consumers seeking improved quality of life, the long-term outlook for the retail sector remains positive.

We will focus on new growth catalysts and reinforce our resilient attributes to drive sustainable returns. Significant sectoral strengths remain to be tapped, even as the Chinese economy undergoes a transition. While uncertainties and challenges will continue to define the fast-changing retail scene in China, CRCT possesses the financial strength, professional skill sets, local network and customer centric culture to continually innovate and adapt to market dynamics in our pursuit to create value for shoppers, tenants and Unitholders.

We will continue to leverage CapitaLand’s extensive expertise to expand our presence in China and to further strengthen our portfolio. Our aim is to differentiate CRCT from the competition and create a quality portfolio of malls that is an integral part of China’s urban landscape and lifestyle. We remain steadfast in our efforts to create relevant and rewarding shopping experiences, which will keep pace with the evolving needs and aspirations of shoppers and their communities.


Mr Lim Ming Yan, who joined our Board in 2013, stepped down as Deputy Chairman, Non-Independent Non-Executive Director, Chairman of the Executive Committee and Member of the Corporate Disclosure Committee. Mr Lee Chee Koon, Non-Independent Non-Executive Director, was appointed the Chairman of the Executive Committee. Both changes on the Board took effect on 1 July 2018. We would like to thank Ming Yan for his contributions over the years and wish him success in his future endeavours.

In closing, we would like to thank the Board for providing their insights and actively participating in Board engagements and discussions, the Management for its leadership and strategy and our staff for their dedication and support. We are grateful to all our tenants, business partners, shoppers, and above all, Unitholders for their trust and support. Together, we will continue to develop resilient retail assets for our Unitholders and deliver great retail experiences for shoppers in China.

Soh Kim Soon

Tan Tze Wooi
Chief Executive Officer

18 February 2019

  1. CRCT issued 64.4 million new units on 7 December 2017 under a private placement.
  2. Includes only multi-tenanted malls based on 100% ownership.
  3. Excludes tenant sales from supermarket and department store.
  4. By Gross Rental Income.
  5. Based on 51% effective interest in Rock Square.
  6. Refer to CRCT Announcement released on 1 February 2019.
  7. Excludes money market line.