Dear Shareholders,

2018 was an eventful year for CapitaLand. We built on the momentum of 2017, with disciplined capital recycling, portfolio diversification and operational excellence, whilst repositioning our business for the future. We divested non-core assets and reinvested in quality assets in strategic markets. We improved our balance between the developed and emerging markets. Most important of all, we accomplished these while keeping a close eye on returns and achieving double-digit growth in profitability.

Financial Scorecard for 2018

We are delighted to report that CapitaLand's financial results continued in an upward trajectory in 2018. The Group registered a 12% increase in profit after tax and minority interests (PATMI) in Financial Year (FY) 2018, at S$1.8 billion compared to S$1.6 billion in FY 2017¹. The Group's higher profits were underpinned by broad based improvements across our businesses. This was mainly attributed to higher contributions from residential projects in China and Vietnam, higher recurring income from our investment properties, and gains from asset recycling and revaluation of investment properties.

Our cash PATMI² of S$1.2 billion makes up approximately 69% of the total PATMI for FY 2018, reflecting the high-quality of our income. For FY 2018, the Board is proposing a final ordinary dividend of 12 Singapore cents a share, with a cash payout of S$499.5 million which translates to approximately 40% of our cash PATMI for FY 2018.

Finally, we also delivered an improved Return on Equity (ROE) of 9.3%, which is above our cost of equity for the financial year. This is 0.7 percentage point higher than the ROE for FY 2017 and 2.7 percentage point higher than for FY 2016.

Financial Prudence and Soundness

The Group proactively manages its balance sheet and capital requirements, to achieve financial prudence and soundness, and to support growth.

As at 31 December 2018, our consolidated cash balance stood at S$5.1 billion, backed by a further S$2.9 billion of available undrawn bank facilities. In addition, we:

• prudently staggered our debt maturity profile which stretches from 2019 to 2027 and beyond, and avoided debt towers. For 2019, the on balance sheet debt due is at a manageable 13.5%;
• extended our debt maturity to 3.6 years in 2018 from 3.4 years in 2017;
• maintained a high proportion of fixed rate debt to mitigate against potential interest rate hikes. Fixed rate debt accounted for 74% of our total borrowings at year end;
• kept our average cost of borrowings low at 3.2% per annum; and
• ensured that our debt servicing remains comfortable and prudent, with interest service and interest coverage ratio³ at 4.4 times and 8.3 times respectively.

The Group continued to look into new ways to improve its financial flexibility and resilience. In October 2018, the Group secured a general purpose S$300.0 million sustainability-linked five-year multi-currency facility. The interest rate on this facility may be adjusted downwards, pegged to the Group's performance against Environment, Sustainability and Governance (ESG) indicators.

The Group continued with its share buyback exercise in 2018, expending a total of S$341.8 million to buy back 95.7 million shares.

A Roadmap to Sustainable Returns Above the Cost of Equity

Operational Performance by Asset Classes

Operational excellence is the backbone of our ability to deliver strong recurring income from our investment and managed properties. As at 31 December 2018, we reported solid operational performance across all our asset classes:

RETAIL

Approximately 40% of CapitaLand's consolidated total assets are in the retail sector. As at 31 December 2018, our core retail markets of China and Singapore reported 23.2% and 1.6% growth in tenant sales respectively compared to 2017, despite the ongoing challenges posed by e-commerce and a muted global retail sentiment. On a same-mall basis, net property income was up by 5.3% and 1.7% year-on-year for China and Singapore respectively.

At CapitaLand, we believe in creating spaces and experiences that engage our shoppers beyond the conveniences offered through the strategic locations of our malls. We work hard to ensure that our malls remain relevant to shoppers. This is manifested through high occupancy rates, 99.1% in Singapore, 97.7% in China, 94.0% in Malaysia and 99.3% in Japan, with stable shopper traffic growth year-on-year. In 2018, we opened three shopping malls in China i.e. Shanghai, Beijing and Changsha – locations consistent with our core city strategy in China. In 2019, we will be opening another seven shopping malls, which include Jewel Changi Airport and Funan in Singapore as well as Raffles City Chongqing in China.

We continue to invest in technology to improve the operational efficiency of our malls and the experience of our customers. Our CapitaStar programme, together with our CapitaVouchers and CapitaCard, have enabled us to engage and understand our customers better. By the end of 2018, our CapitaStar membership crossed the 7.5 million mark.

COMMERCIAL

In 2018, we launched the "Office of the Future" strategy aimed at engendering a culture of innovation, promoting talent attraction and retention and optimising cost efficiency for tenants of our office properties. Our strategy integrates conventional and flexible office space which saw us acquiring a 50% stake in The Work Project, an operator known for its design and operational capability. During the year, we also launched CapitaStar@Work, an app which we have developed for our commercial tenants that allow them easier access into our building, allow them to book office facilities and us to alert tenants about engagement activities planned for them. Our intelligent building platform, Deep Blue makes use of equipment and video analytics to save operating costs on chiller plants, as well as to improve surveillance security and optimise the operations of our offices.

As at 31 December 2018, our primary commercial presence remains in Singapore and China, where occupancy was 99.3% and 92.0% respectively, well above the average occupancy rates in both markets.

LODGING

As at 2018, CapitaLand's lodging platform has secured over 100,000 units across 170 cities and over 30 countries, against the Year 2020 target of 80,000 units. In the lodging business, scale is a key competitive advantage as it is crucial to "follow" your customers to global destinations as they travel for work and for play.

During the year, the Group expanded its global lodging network through selective acquisitions and strategic tie-ups. These include the acquisition of 70% of TAUZIA, a hotel operator in Indonesia, a JV with Huazhu Hotels Group in China to further develop the Citadines brand in China, as well as other partnerships in China, Japan, Indonesia, Thailand and the Philippines.

We are well on track to meeting the revised target of 160,000 units by Year 2023.

Digitalising CapitaLand

In 2018, substantial efforts were put into building a robust and agile information technology infrastructure which has allowed us to digitalise our processes and scale up.

At the corporate level, a group-wide enterprise resource planning system was implemented in 2018. This created an integrated platform to allow us to scale up our businesses across geographies and asset classes more efficiently.

As we strengthen our digital capabilities, equally important, we have sharpened our focus on cyber resilience. During the year, we have increased efforts to strengthen our internal cyber security ecosystem. This is an area which we have invested significantly over the years to safeguard the interests of our customers, partners and shareholders.

Continued Commitment to ESG and People Development

CapitaLand recognises that the long-term success of our business is closely intertwined with the environments and communities we operate in, our adherence to standards of corporate governance, as well as the people that make up CapitaLand. We are a signatory to the United Nations Global Compact (UNGC) and supports its 10 Principles relating to human rights, labour, environment and anti-corruption. Guided by our credo 'Building People. Building Communities.', we aspire to be at the forefront of ESG best practices.

We are dedicated to attracting talent and developing our employees by inculcating a lifelong learning mindset. We continue to upskill our employees and equip them with future-ready knowledge and skillsets. Our people and desire for continued high performance form the basis to how we drive our ESG efforts. In 2018, the Group won the SkillsFuture Employer Award for championing employee skills development in the real estate sector.

The Nominating Committee's remit includes recommending code of conduct and board composition, which includes diversity, board and management expertise and forms the bedrock of our business. As a testament to our commitment to corporate governance best practices, we were awarded Silver for the Best Managed Board (for listed companies with S$1 billion and above in market capitalization) at the Singapore Corporate Awards in 2018. We also won the Best Corporate Governance (Singapore) at World Finance's Corporate Governance Awards 2018 and the Most Transparent Company Award (Properties) at Securities Investors Association (Singapore)'s 19th Investors' Choice Awards.

In 2018, we remained the only company in Singapore which was awarded the Silver Medal by RobecoSAM Sustainability Yearbook 2018. We are also a constituent on recognised sustainability indices such as Global 100 Most Sustainable Corporations, Dow Jones Sustainability World Index and Asia Pacific Index, Global Real Estate Sustainability Benchmark (5 Star), FTSE4Good Index Series and MSCI Global Sustainability Indexes.

Leadership Transition

As part of succession planning and reflective of our deep bench strength, the Group appointed a new leadership team, led by Mr Lee Chee Koon as President & Group Chief Executive Officer (GCEO) on 15 September 2018 to succeed Mr Lim Ming Yan following his retirement. Mr Lee is supported by an experienced management team that has been instrumental in developing and executing the Group's growth strategy over the years. The team's combined competencies and experiences will chart the Group's next phase of growth.

A Heartfelt Thank You

Mr Lim Ming Yan retired on 31 December 2018. He served CapitaLand with dedication and distinction for 22 years, including as the Group's President & GCEO from 2012. The Group has benefitted much from Mr Lim's many years of service and leadership. We thank Mr Lim for ensuring a smooth transition to the new leadership team. As we bid him farewell, we wish him all the very best in his new endeavours.

Ms Euleen Goh, an independent non-executive board director, will not be seeking re-election at the upcoming Annual General Meeting. Ms Goh has served with distinction on our Board for more than seven years and we have always benefitted from her active engagement, insights and perspectives. The Board and management would like to place on record its appreciation to Ms Goh for her wise counsel and invaluable contributions to CapitaLand.

Building a Sustainable Future

CapitaLand remains steadfastly committed to be a leading global real estate business based in Singapore. Towards this end, to take us forward into a new era of growth, we have identified a high-quality complementary business in Ascendas-Singbridge, which we have proposed to acquire for a total purchase consideration of S$6.0 billion. You will be receiving a separate circular with the information on our proposed acquisition. Here is a summary of the key benefits of this proposed addition.

• This acquisition is transformational for CapitaLand, creating one of Asia's leading diversified real estate groups.
• The portfolio includes new economy asset classes such as logistics / business parks and industrial, which will allow the Group to diversify our product offerings with complementary asset classes.
• It will deepen the Group’s presence in our core markets of Singapore and China, as well as add India to the Group’s growth markets of Vietnam, the U.S. and Europe.
• CapitaLand will become the top ten real estate investment manager globally, as well as the manager of the three largest real estate investment trusts listed on the Singapore Exchange, namely Ascendas Real Estate Investment Trust, CMT and CCT, allowing us to grow an asset-light, ROE accretive fee business.

We look forward to your continued support as well as the support of our business partners, customers, financiers and other stakeholders for CapitaLand as we look to expand our business.

Last but not least, we wish to express our appreciation to our Board members for their active participation in board deliberations and for their guidance, counsel and advice, and to our staff for their dedicated service efforts and commitment.