Letter to Unitholders

On behalf of the Board of CapitaMall Trust Management Limited (as manager of CapitaMall Trust), we present the report of CapitaMall Trust for the year ended 31 December 2003.

Financial Performance

Despite the outbreak of Severe Acute Respiratory Syndrome (SARs) and the global repercussions of the war in Iraq, which had a significant impact on the economy in the first half of 2003, the year proved to be a successful one for CMT. We are pleased to announce that CMT had achieved an increase in net property income, asset valuations and DPU.

CMT’s performance had surpassed expectations with total returns of 48.5 percent, comprising capital gains of 41.6 percent¹ and distribution yield of 6.9 percent². Total DPU paid out to unitholders for the year 2003 was 8.03 cents, 15 percent above our Initial Price Offer (IPO) DPU forecast of 6.96 cents.

In fact, “growth” is our mantra, and it is worth analysing the strategies that has resulted in our success.

Key to CMT’s growth were yield-accretive investments as well as the successful implementation of asset enhancement initiatives.

"CMT’s performance had
surpassed expectations with total returns of 48.5 percent ..."

Major Developments

YIELD-ACCRETIVE ACQUISITION AND INVESTMENTS

2003 saw our very first yield-accretive acquisition of IMM Building (IMM) at a cost of S$264.5 million and the yield-accretive investment of S$58.0 million in the Class E Bonds issued by CapitaRetail Singapore Limited (CRS), a special purpose vehicle which owns Lot One Shoppers’ Mall, Bukit Panjang Plaza and Rivervale Mall. Two separate capital raising exercises were held to fund these investments. On both occasions, the response was overwhelming with all units fully subscribed. The overall success of our equity offerings was a clear mandate from the public and unitholders of their confidence in CMT despite the then prevailing subdued economic sentiments and is testament that CMT has established a strong performance track record. The management is indeed heartened by the show of support.

INCREASED LIQUIDITY AND MARKET CAPITALISATION

With 164.8 million new units issued in 2003, CMT enjoyed improved liquidity and a remarkable increase in market capitalisation. This paved the way for CMT’s inclusion in various prestigious investment indices which are widely referred to by international fund managers as performance benchmarks in the selection and monitoring of investments. These include Global Property Research’s GPR 250 Index and GPR General Index, as well as the EPRA/NAREIT Global Real Estate Index and its sub-indices.

UPFRONT LAND PREMIUM PAYMENT FOR IMM

In another noteworthy development, Jurong Town Corporation (JTC) has granted the approval for CMT to convert its holding of IMM (presently under an annual rent revision scheme) to an upfront premium scheme for a lease term of 45 years to January 2049 upon the payment of an upfront land premium of S$55.7 million. This has favourable implications for unitholders, as potential increases in the annual land rent can be averted under this arrangement.

PROACTIVE MANAGEMENT

Apart from growth through investments, our on-going proactive approach to managing the malls provided the foundation for CMT’s remarkable performance in 2003. CMT achieved close to 100 percent retail occupancy and an improvement of 3.7 percent in total net property income (refer to chart “Net Property Income” on pg 6) across the four malls.

With the exception of Funan The IT Mall (Funan), the malls exceeded our forecast Net Property Income (NPI) and renewal rental rates. Considering that Junction 8, Tampines Mall and IMM were on track for better than expected results for the year, a deliberate attempt on our part was made to reposition Funan. As a result, there was an increase in vacancy voids due to asset enhancements carried out and an increase in fitting out expenses to establish the platform for Funan’s growth in the future.

On a portfolio basis, the new leases concluded for the year saw a 6.2 percent increase in rental rates (refer to “Summary of Renewals / New Leases” on this page) versus forecast rental rates.

ASSET ENHANCEMENTS

Rental improvements aside, we believe there is always room to further propel growth at the malls. This was achieved through a disciplined and proactive approach to asset planning and management of the properties. Every investment decision was calculated and premeditated in meticulous detail at each stage of the planning process. An innovative thought process was also necessary to jump-start the asset enhancement initiatives. In fact, during the year, Phase 1 of the asset enhancements at Junction 8 and Tampines Mall were completed and all new tenants commenced trading ahead of schedule. CMT will continue to break new ground in creating increased value through asset enhancements, hence enhancing returns for CMT’s unitholders.

Looking Forward

Going forward, CMT will continue with asset enhancement initiatives at the malls. Phase 2 of the asset enhancements at Tampines Mall and Junction 8 are currently underway and we expect completion by end 2004. Over at Funan, we expect to see more brand-name retailers in the coming years. Asset enhancements have also commenced and this will give Funan a totally new and refreshing facade with escalators providing direct access from the ground level to the upper levels.

With in-principle approval granted by the Urban Redevelopment Authority (URA), we are also looking forward to asset enhancement works at IMM, which will spur growth in the years ahead. Work is expected to commence in early 2005.

With business conditions expected to improve in 2004, consumer sentiment is poised to be increasingly positive. In the same light, we expect that retail sales will remain upbeat, especially for retailers focusing on basic and essential consumer goods. We are optimistic for a pick up in retail activities, barring any unforeseen circumstances.

As always, we strive to increase value for all our stakeholders. CMT will continue to explore new ground and innovate so as to stay relevant to changing market demands and economic conditions and thus continue to sustain its growth.

Our main objectives for the year 2004 will be to maintain the existing high occupancy rates and achieve our targeted earnings for the year. CMT looks forward to another strong showing in 2004.

Corporate Governance

With the transparent nature of the Real Estate Investment Trust structure, it is imperative that CMT makes timely and accurate disclosure of material information. Good corporate governance remains high on our agenda.

Acknowledgements

Finally, we would like to thank our unitholders, business partners, customers including both tenants and shoppers, and all staff members for their support in these challenging times. With the continued support of all stakeholders, CMT will continue to engineer growth through value creation and endeavour to deliver on forecast DPU.

18 March 2004

1. Derived from market price per unit of S$1.43 as at 31 December 2003, over the market price of S$1.01 as at 31 December 2002.
2. Derived from 2003 full-year DPU over 2003’s weighted average market price per unit of S$1.17.