china shopping mall sector - credit suisse

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13 December 2012

Asia Pacific/China

Equity Research

Real Estate

China Shopping Mall Sector THEME

Malls vs department stores in Tier 2 cities: A

Chengdu case study

Figure 1: Key malls in Chengdu

Source: Google map

Our recent visit to Chengdu confirmed our view that shopping malls are taking

over market share from department stores in Tier 2 cities:

■ Shopping malls are outperforming department stores. YTD, Chengdu’s

retail sales were up 15% YoY, but our talks with industry experts show many

department stores’ sales declined around 10% YoY as existing and new

shopping malls took market share from department stores.

■ New malls are ramping up sales/rents quickly. We did a detailed study of

the four new malls in Chengdu—three of them opened just this year, and

one is scheduled to open end-2013 but is already 77% pre-leased. Two of

the malls (Raffles City Chengdu by CapitaMalls Asia and MIXc by CR Land)

have managed a near 100% occupancy quickly, with relatively strong foot

traffic and sales, even though MIXc’s location is not well-developed yet.

■ We like CR Land and CMA. By achieving a satisfying rental growth rate in

Chengdu and strong sales in Nanning MIXc mall (newly acquired from the

parent), we believe CR Land deserves a re-rating as its shopping mall

assets are still undervalued. The success of Raffles City Chengdu is also an

example that shows that 2013 may be the harvesting period for CMA, as

many newly opened malls should start contributing strong rental income.

Research Analysts

Jinsong Du

852 2101 6589

[email protected]

Duo Chen

852 2101 7350

[email protected]

Yvonne Voon

65 6212 3026

[email protected]

Contribution by

Parker Ding

13 December 2012

China Shopping Mall Sector 2

Focus charts and tables Figure 2: Chengdu annual retail sales of consumer goods Figure 3: Shopping malls’ market share keeps increasing

13% 13%

9%

13%15% 15%

17%

20% 20%

24%

18%

15%

0%

5%

10%

15%

20%

25%

30%

-

50

100

150

200

250

300

350

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 10M12

(Rmb bn) Chengdu retail sales of consumer goods

Chengdu retail sales of consumer goods YoY (RHS)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E

Shopping mall Department store and others Source: Jones Lang LaSalle, Credit Suisse Research Source: Jones Lang LaSalle, Credit Suisse Research

Figure 4: Malls comparison

Total Rentable Ground Occupancy

GFA floor rental

Mall Operator Open date Submarket Positioning (sq m) GFA (Rmb/sq m/month) rate

IFS Wharf End-2013 Chunxi Road Ultra High-End 200,000 55% 1,400 77% preleased

Raffles City Chengdu Capitaland 23 Sep 2012 1st Ring Road Mid-End 74,000 57% (42,000) 450 100%

MIXc CR Land 11 May 2012 2nd

Ring Road Mid-High-End 152,098 55% (83,288) 450 100%*

9-Square AVIC 20 Sep 2012 City South New Development Zone Mid-End 100,000 55-60% 250 98%

Landmark Yanlord 3 Sep 2010 Chunxi Road High-End 44,000 58% (25,600) 1,200 85%

Note: This occupancy rate of 100% includes a few shops that are leased but not yet open—e.g., the Apple Store that is scheduled to open

in mid-December alongside the iPhone 5 launch in China.

Source: Company data, Jones Lang LaSalle, Credit Suisse estimates

Figure 5: CR Land NAV breakdown

Rmb mn Rmb/share % of GAV

Development properties 89,433 16 47%

Investment properties 85,515 16 45%

Hotels 17,167 3 9%

Estimated GAV 192,116 35

Estimated net debt and outstanding land premium (39,105) (7)

Estimated NAV 153,010 28

Estimated NAV (HK$) 34

Source: Company data, Credit Suisse estimates

Figure 6: CMA RNAV summary

GAV S$/ % to

(S$ mn) share Total Methodology

China assets 5,281 1.36 36 8% cap rates, CRCT at market

Singapore assets 6,432 1.66 44 5-6% cap rates, CMT at TP

Malaysia assets 1,058 0.27 7 CMMT at TP

Japan assets 171 0.04 1 At book

India assets 94 0.02 1 At book

Management business 1,444 0.37 10 15x EBIT

Gross asset value 14,481 3.73 100 (incl. off-balance sheet debt and future capex)

Less: est. net debt & equity commitments (4,717) (1.21)

RNAV 9,764 2.51


13 December 2012


Chengdu visit shows malls are taking market share from department stores Chengdu, a typical Tier 2 city, shows us why and how the shopping malls are taking

market share away from the department stores, and what kind of shopping malls may

become the long-term winners in China’s retail market.

YTD, Chengdu’s retail sales were up 15% YoY, but our talks with industry experts show

many department stores’ sales declined around 10% YoY, as existing and new shopping

malls took market share from department stores.

Figure 7: Chengdu annual retail sales of consumer goods

13% 13%

9%

13%15% 15%

17%

20% 20%

24%

18%

15%

0%

5%

10%

15%

20%

25%

30%

-

50

100

150

200

250

300

350

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 10M12



Source: NBS

Figure 8: Chengdu shopping mall’s market share keeps

increasing

Figure 9: Shopping malls are taking market share from

department stores in both Tier 1 and smaller cities

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E

Shopping mall Department store and others

73% 78% 81%

51%

68%74%

27% 22% 19%

49%

32%26%

0%

20%

40%

60%

80%

100%

2009 2012 2015 2009 2012 2015

Shopping mall

Tier II citiesBeijing &Shanghai

Source: Jones Lang LaSalle, Credit Suisse research Source: Jones Lang LaSalle, Credit Suisse research

We did a detailed study of the four new malls in Chengdu—three of them opened just this

year, and one is scheduled to open end-2013 but is already 77% pre-leased. Two of the

malls (Raffles City Chengdu by CapitaMalls Asia and MIXc by CR Land) have managed a

near 100% occupancy quickly, with relatively strong foot traffic and sales, even though

MIXc’s location is not well-developed yet. They are doing better than Yanlord’s existing

mall, Landmark, opened in 2010. Even though Landmark is much more centrally located,

CMA and MIXc’s better management skills, store brand positioning and more modern and

spacious layout led to the near 100% occupancy rate vs Yanlord Landmark’s 85%.

Chengdu visit shows malls

are taking market share

from department stores

13 December 2012


IFS

Wharf’s IFS is located in the most popular traditional retail submarket in Chengdu—

Chunxi Road. There are many department stores in this area but only a few shopping

malls. Yanlord’s Landmark is the most high-end mall in this region, charging a

Rmb1,200/sq m/month as rental for the ground floor. After IFS opens end of next year, it

will become the most high-end mall in this submarket. It has signed D&G, Giorgio Armani,

Fendi, Prada and Tod’s already, and may also secure the first Chanel store in south west

China. Currently, 77% of pre-leasing is done, and IFS may charge Rmb1,300-1,500/sq m

as ground floor rental.

Raffles City Chengdu

CapitaMalls Asia’s Raffles City Chengdu is located on 1st Ring Road and is on top of a

Line 1 subway station. It is also close to a high-end residential project cluster and attracts

good foot traffic and consumption. It opened in September 2012, has a 100% occupancy

rate, and charges around Rmb450/sq m/month as ground floor rental.

MIXc

CR Land’s MIXc is located on 2nd

Ring Road and will be next to the future Subway Line 4

(scheduled to start operation around end-2014 or beginning-2015). The mall is mid-to-high

end postitioned and is set to open the first Apple Store in West China this December. It

charges Rmb450/sq m/month as ground floor rental (higher than the city average of

Rmb400/sq m/month, despite its not-so-central location) and has a 100% occupancy rate

(including a few shops that are leased but not open yet—e.g., the Apple Store that is

scheduled to open mid-December, alongside the iPhone 5 launch in China). There is a

highway under construction nearby and this may affect foot traffic, but we expect it to

improve significantly after the highway and the subway start operations.

9-Square

AVIC’s 9-Square mall is located in the City South New Development Zone and opened in

September this year. It is positioned as a mid-end mall but the tenant mix is not as

consistent as Raffles City Chengdu—AVIC mall also has some international mid-to-high

end brands on the ground floor, but has more local brands on the second or higher floors

(such as Vero Moda, etc.). The occupancy rate is currently 98%.

Landmark

Yanlord’s Landmark is located in the Chunxi Road submarket and lies in the Chengdu

CBD core zone. It is positioned as a high-end mall, and most of the tenants are high-end

brand stores. Yanlord Landmark is the most high-end mall in this region now, charging

Rmb1,200/sq m/month as rental for the ground floor. The occupancy rate is 85% currently.

Figure 10: Mall comparison

Total Rentable Ground Occupancy

GFA floor rental

Mall Operator Open date Submarket Positioning (sq m) GFA (Rmb/sq m/month) rate

IFS Wharf End-2013 Chunxi Road Ultra high-end 200,000 55% 1,400 77% preleased

Raffles City Chengdu Capitaland 23 Sep 2012 1st Ring Road Mid-end 74,000 57% (42,000) 450 100%

MIXc CR Land 11 May 2012 2nd

Ring Road Mid-high end 152,098 55% (83,288) 450 100%*

9-Square AVIC 20 Sep 2012 City South New Development Zone Mid-end 100,000 55-60% 250 98%

Landmark Yanlord 3 Sep 2010 Chunxi Road High-end 44,000 58% (25,600) 1,200 85%

* Note: this occupancy rate of 100% includes a few shops that are leased but not yet open—e.g., the Apple Store that is scheduled to open in

mid-December alongside the iPhone 5 launch in China.

Source: Company data, Jones Lang LaSalle, Credit Suisse estimates

MIXc Chengdu charges

Rmb450/sq m/month as

ground floor rental (higher

than the city average of

Rmb400/sq m/month,

despite its not-so-central

location) and has an 100%

occupancy rate

13 December 2012


Figure 11: Location of the malls

Source: Google maps

13 December 2012


Pipeline: Potential oversupply but incumbent players should outperform The map below shows a strong pipeline (up to 2017E) of retail space (mostly shopping

malls), which may lead to potential oversupply and thus put pressure on existing

department stores and shopping malls.

However, most of the new supply is in the north, central and south of Chengdu. CR Land’s

MIXc Mall, being in the east, should be less affected by the upcoming pipeline. Historical

data tells us that many of the malls’ opening may be delayed significantly. As a result,

incumbent mall operators should benefit.

As most of the existing department stores are located in central Chengdu; we expect them

to be affected the most from competition from newer malls (which in general offers a better

shopping experience) as well as the worsening traffic jam (which makes consumers more

likely to shop in nearby malls rather than going to the department stores at the city centre).

Figure 12: Malls and department stores by major operators in Chengdu (green ones in operation; red ones in pipeline)

Source:Google maps

Chengdu has a strong

pipeline of retail space

(mostly shopping malls),

which may lead to potential

oversupply. However, mall

openings may be delayed.

Therefore, we expect

incumbent players to

outperform

13 December 2012


Figure 13: Major malls in operation

Retail GFA

Property Developer Format Submarket Positioning Open date (sq m)

A Renhe Spring P1 Renhe DS Chunxi Rd&Yanshikou High-end 1998 6,000

A Renhe Spring P2 Renhe DS Chunxi Rd&Yanshikou High-end 2003 2,000

B CapitaMall (Jinniu) CapitaMalls Asia SM Second Ring Rd Mid-low 4Q06 42,000

C Wanda Plaza Wanda SM Second Ring Rd Mid-end 4Q07 250,000

D Parkson (Times Plaza) Tairan Property DS Chunxi Rd&Yanshikou Mid-high 4Q07 25,000

E Renhe Spring Plaza Renhe DS Second Ring Rd High-end 4Q09 60,000

F Yanlord Landmark Yanlord SM Chunxi Rd&Yanshikou High-end 3Q10 44,000

A Renhe Spring P3 Renhe DS Chunxi Rd&Yanshikou High-end 3Q10 25,300

G Paradise Walk (Sanqianji) Longfor SM Second Ring Rd Mid-high 3Q10 50,000

H Uno Mall Guangzhou R&F SM Luomashi Mid-end 3Q11 250,000

I MIXc CR Land SM Second Ring Rd Mid-high 2Q12 244,000

J Raffles City Chengdu Capitaland SM Second Ring Rd Mid-high 3Q12 73,784

K 9-Square AVIC Real Estate SM City South New Development Zone Mid-high 3Q12 85,601

Source: Jones Lang LaSalle, Credit Suisse research

Figure 14: Major malls in the pipeline

Retail

Open GFA

Property Developer Submarket Format Positioning date Status (sq m)

L Jinniu Wanda Plaza Wanda Group Second Ring Rd SM Mid-high 2013 U/C 129,400

M CapitaMall. Tianfu CapitaMalls Asia Second Ring Rd SM Mid-end 2013 U/C 130,000

N Paradise Walk (North) Longfor Second Ring Rd SM Mid-high 2013 U/C 300,000

O International Financial Centre Wharf Chunxi Rd&Yanshikou SM High-end 4Q13 U/C 200,000

P North City Tiandi Shui On Second Ring Rd SM Mid-high 2014 U/C 48,481

Q Dacisi Project Swire and Sino Ocean Chunxi Rd&Yanshikou SM Mid-high 2014 U/C 85,000

R Joy City COFCO Second Ring Rd SM Mid-high 2015 U/C 160,000

S Spring International Plaza Renhe City South New

Development Zone

SM High-end 2015 Proposed 150,000

T WECity KWG and HK Land Second Ring Rd SM Mid-high 2015 Proposed 124,586

U ICC SHK, Henderson &

Wharf

Second Ring Rd SM High-end 2016 Proposed 120,000

V Intime Center Intime Group City South New

Development Zone

SM High-end 2016 Proposed 180,000

W Longemont Shopping Center Perenial and Summit Second Ring Rd SM Mid-high 2017 Proposed 350,000

Source: Jones Lang LaSalle, Credit Suisse research

13 December 2012


We like CR Land and CMA By achieving satisfying rental in Chengdu and strong sales in Nanning MIXc Mall (newly

acquired from the parent), we believe CR Land deserves a re-rating as its shopping mall

assets are still undervalued.

The success of Raffles City Chengdu is also an example that shows that 2013 may be the

harvesting period for CMA, as many newly opened malls should start contributing strong

rental income.

CR Land: Shopping mall assets are undervalued

Figure 15: CR Land NAV breakdown

Rmb mn Rmb/share % of GAV

Development properties 89,433 16 47%

Investment properties 85,515 16 45%

Hotels 17,167 3 9%

Estimated GAV 192,116 35

Estimated net debt and outstanding land premium (39,105) (7)

Estimated NAV 153,010 28

Estimated NAV (HK$) 34


If we applied Hang Lung’s 15% discount to NAV (which includes residential assets) to only

CR Land’s commercial assets, CR Land’s current share price would imply its residential

assets are trading at a 67% discount to NAV—much lower than many of its even much

smaller Chinese developer peers.

Figure 16: CR Land valuation (exclude hotels from IP)

Hang Lung CR Land IP (excluding hotels) CR Land others CR Land total

Share price 29.9 16.1 5.0 21.1

NAV per share 35.3 19.0 15.0 34.0

Discount to NAV -15% -15% -67% -38%


CapitaMalls Asia: Earnings momentum to improve in

2013 as China malls stabilise

As highlighted earlier in our CMA report dated 19 Nov 2012, published in conjunction with

our joint report by the CS Asian Property and Consumer team on the China shopping mall

sector, of the five mall operators we looked at, CMA ranked well with a 25% of portfolio in

the “Good” cities, 43% in “Neutral” and only 5% in the “Bad” cities, mainly due to three

malls: (1) CapitaMall Jinshui in Zhengzhou; (2) CapitaMall Wusheng in Wuhan, although

the mall opened only in 3Q12 with over 80% pre-commitment; and (3) Raffles City

Chengdu Changning in Shanghai (completing in 2015).

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1003681421&serialid=8qJyehvQzAG2iFl06JUMY7PSDqu7pL%2fp5csXuM6Ssrs%3d

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1003673281&serialid=WF0noYHJRc8Oj2CFzR6IEhgrv%2b4kcb1W%2bJsvZAZTXs4%3d

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1003673281&serialid=WF0noYHJRc8Oj2CFzR6IEhgrv%2b4kcb1W%2bJsvZAZTXs4%3d

13 December 2012


Figure 17: CMA’s portfolio positioning, based on city rank

Good, 25%

Neutral, 43%

Bad, 5%

N/A, 27%

* Based on valuation (effective stake).


We believe that one of CMA’s advantages in China is its ability to leverage on a regional

tenant pool, and its extensive mall network. With a pan-Asia portfolio of 101 retail

properties across 52 cities, it can provide a differentiated product versus its competitors by

tapping into its regional tenant pool. At the same time, many new retailers are keen to

collaborate with CMA due to its large regional footprint, including Kate Spade and Hollister,

which opened their first outlet in Shanghai with CMA.

Starting to see turnaround in profitability in China

Despite China accounting for more than half of the total assets, China PATMI (profit after

tax and minority interest) is barely a third as the majority of its malls in China are still in the

stabilisation phase (for those opened in 2011; typically takes a year for a mall to stabilise)

or yet to be opened. Figure 17 shows that if we strip out the malls opened in 2011 (i.e., not

stabilised), then only about a third of the opened malls are effectively contributing to

CMA’s profits.

However, we expect profitability to improve going forward for its China portfolio as its malls

gradually stabilise and those under construction complete. Figure 15 below shows the

inflexion point in earnings as its China business starts being profitable again.

Figure 18: 9M12 PATMI contribution by country Figure 19: Property income component of the PATMI of

China subsidiaries, associates and jointly-controlled

entities SG CH MY JP IN Total

Subsidiaries' contribution 28 99 31 37 -1 194

Property income 0 14 15 13 0 42

Portfolio gain 0 65 0 0 0 65

Revaluation -6 3 20 31 0 48

Mgmt fee business 40 20 1 -2 0 59

Others 3 10 -2 -2 -1 8

Int cost, tax, NCI -9 -13 -3 -3 0 -28

Assoc & JCE contribution 177 42 29 1 -3 246

Property income 98 21 15 1 -2 133

Development profits 4 0 0 0 0 4

Portfolio gain 24 0 0 0 0 24

Revaluation ex REIT 23 16 0 0 -1 38

REITs revaluation 28 8 14 0 0 50

Others 0 -3 0 0 0 -3

Total* 205 141 60 38 -4 440^

-2

0

2

4

6

8

10

12

14

16

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12

Property Income

S$mn

* Total before corporate, treasury finance cost. ^ S$361 mn after

deducting S$79 mn for corporate, treasury finance costs and

corporate tax. Source: Company data

Source: Company data, Credit Suisse research

Ability to leverage on

regional tenant pool and its

extensive mall network

13 December 2012


Figure 20: Total assets of S$9,030 mn, by country Figure 21: Operational malls make up close to 2/3 of NAV

Singapore33%

China51%

Malaysia7%

Japan8%

India1%

20056% 2006

9%20073%

20083% 2009

4%20104%

201133%

20129%

201310%

2014 onwards19%

* Data as at 30-Sep-2012. Source: Company data * NAV as at 31-Dec-2011: S$4 bn. Source: Company data

Maintain OUTPERFORM: Execution is key

We expect cash flows to improve with profit contribution from China set to rise as CMA’s

malls gradually stabilise and those under construction complete. We maintain our

OUTPERFORM rating on CMA as a proxy to China’s consumption growth (China malls

make up 36% of RNAV). The stock trades at a 22% discount to RNAV at 1.2x P/B.

Figure 22: CMA RNAV summary

GAV S$/ % to

(S$ mn) share Total Methodology

China assets 5,281 1.36 36 8% cap rates, CRCT at market

Singapore assets 6,432 1.66 44 5-6% cap rates, CMT at TP

Malaysia assets 1,058 0.27 7 CMMT at TP

Japan assets 171 0.04 1 At book

India assets 94 0.02 1 At book

Management business 1,444 0.37 10 15x EBIT

Gross asset value 14,481 3.73 100 (incl. off-balance sheet debt and future capex)

Less: est. net debt & equity commitments (4,717) (1.21)

RNAV 9,764 2.51


Figure 23: CMA—Premium/(discount) to RNAV Figure 24: CMA—P/B

-21.7

-32.1

-25.5

-38.8

-50

-40

-30

-20

Dec-10 May-11 Oct-11 Mar-12 Aug-12

Prem/(disc) to RNAV Mean - (32.1)% ± 1 std

(%)

1.201.15

1.43

0.86

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12

CMA - P/B Average - 1.15 ±1 std. dev.

P/B

Source: Company data, Credit Suisse estimates Source: Company data, Bloomberg

13 December 2012


Appendix: Chengdu retail market overview This is an excerpt from our report China Retail Property Chart Book, published on 21

November 2012 (click here), which includes detailed analysis of retail markets in 13 cities

in China).

Chengdu is the capital city of Sichuan Province and is also considered as the economic

centre of Western China. It has a strong retail market, partially thanks to local people’s

high willingness to spend—total retail sales of consumer goods reached Rmb286 bn in

2011. The strong market attracts both retailers and developers: many retailers choose

Chengdu to open their first store in Western China. Therefore, Chengdu’s retail space

supply accelerated since 2006, about 2–3 years ahead of most of the other tier II cities.

The local government plans to enlarge the city scale and develop the new CBD—the City

South New Development Zone. 36% of the retail space pipeline is located in this area,

which may still take years to get mature. The same story unfolded for some parts of the

Second Ring Rd Commercial Loop. We expect malls to have more diversified performance

due to varying progress in city redevelopment, infrastructure upgrade and market maturity.

Supply and demand

Chengdu’s shopping mall supply accelerated since 2006. Shopping mall supply as of

2Q12 totalled 1.79 mn sqm, 6.7 times of 2005 supply of 0.27 mn sqm. By the end of 2Q12,

shopping malls took 69% of total retail space supply.

Figure 25: Retail sales of consumer goods Figure 26: Urban disposable income per capita

0%

5%

10%

15%

20%

25%

30%

-

50

100

150

200

250

300

350

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011



0%

5%

10%

15%

20%

25%

-

5,000

10,000

15,000

20,000

25,000

30,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

(Rmb per person) Chengdu urban disposable Income per capita

Chengdu urban disposable Income per capita YoY (RHS)


Figure 27: Most of new retail space supply is shopping

mall

Figure 28: Shopping mall takes 69% of total retail space

(0.10)

-

0.10

0.20

0.30

0.40

0.50

0.60

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2Q12

(mn sqm) Chengdu department store net new supply

Chengdu shopping mall net new supply

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-

0.5

1.0

1.5

2.0

2.5

3.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2Q12

(mn sqm) Chengdu shopping mall supplyChengdu department store supplyChengdu shopping mall supply / Total retail space supply

Source: Jones Lang LaSalle, Credit Suisse research Jones Lang LaSalle, Credit Suisse research

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=1003797461&serialid=dJm9GLbMfmEQqA9CChDs8pzEYjjLvo7YmlKfal2bFho%3d

13 December 2012


Figure 29: Retail sales of consumer goods / retail space Figure 30: Disposable income / retail space

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

(Rmb/sqm)

oversupply

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

(Rmb/sqm)

oversupply


Vacancy rate

Chengdu’s vacancy rate is one of the highest among the 13 cities—12.6% by the end of

2Q12. According to Jones Lang LaSalle’s local analyst, the high vacancy is partially

dragged up by two high vacancy malls: (1) Uno Mall (天汇购物中心) with 30% vacancy; (2)

SM City (SM广场) with 45% vacancy. If we exclude these two malls, Chengdu’s vacancy

should be around 10%—still quite high, in our view.

If new supply comes into the market with low take-up, the vacancy of the whole market will

be dragged up. This happened in 3Q11, when Uno Mall (天汇购物中心) opened at 50%

vacancy rate and Suning Plaza opened at 20% vacancy rate. These two malls’ vacancy rate

stayed high till now, due to slow leasing progress and even some tenants withdrawn.

Figure 31: Shopping mall total supply and vacancy Figure 32:Shopping mall new supply/ absorption/ vacancy

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

(mn sqm) Chengdu total SM supply Chengdu vacancy rate (RHS)

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

(200,000)

(100,000)

-

100,000

200,000

300,000

400,000

(sqm) Chengdu net new SM supply Chengdu net new SM absorption

Chengdu SM vacancy


Figure 33: Key projects opened at high vacancy rate

Project Submarket District Completion Format Retail GFA Open vacancy Current vacancy

Uno Mall 天汇购物中心 Luomashi Qingyang 3Q11 SM 250,000 50% 30 %

Suning Plaza 苏宁广场 Second Ring Rd Hi-Tech 3Q11 SM 120,000 20 % 45 %

Source: Jones Lang LaSalle, Credit Suisse research (vacancy rates are based on site visits, retail GFA is

based on Jones Lang LaSalle best estimates)

Chengdu’s pipeline totals 4.05 mn sq m, 158% of current total supply of 2.56 mn sq m.

36% of the pipeline is located in City South New Development Zone, an emerging district

that may still take years to get mature. The government successfully attracted many

shopping mall developers into this district in the past few years. Some of the upcoming

shopping malls are very close to each other, so may face fierce leasing competition in the

future. The Eastern and Northern parts of the Second Ring Rd Commercial Loop also

have huge retail space pipeline and will also take years to get mature.

13 December 2012


As supply increases, we expect the malls to have more diversified performance due to

different progress of city redevelopment, infrastructure upgrade, and market maturity.

Those properties enjoying good locations and accessibility, or operated by experienced

developers are more likely to achieve better leasing progress and performance, while

those without may suffer from intense competition.

Figure 34: Pipeline—breakdown by year Figure 35: Pipeline—breakdown by submarket - 0.5 1.0 1.5 2.0 2.5

Before 2011

2011

2012

2013

2014

2015 forward

(mn sqm)

Chengdu pipeline - DS and others Chengdu pipeline - SM

- 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Chunxi Rd&Yanshikou

Second Ring Rd Commercial Loop

New South Area

Luomashi

(mn sqm)

Chengdu retail space existing stock Chengdu retail space pipeline Source: Jones Lang LaSalle, Credit Suisse Research Source: Jones Lang LaSalle, Credit Suisse Research

Actual completions in 2009/10/11 were at 143%/196%/140% of the planned area,

respectively. The main reasons are: (1) Jones Lang LaSalle expanded coverage to the

emerging areas. For example, they included Ito Yokado Jianshe Rd Store in 2009,

included the Paradise Walk (Sanqianji) and Chengdu Hualian in 2010, and included

Wangfujing shopping centre in 2011.

Delays are more often seen in new developing areas. For example, Uno Mall was delayed

from 2010 to 2011. OCC, Central City, Raffles City Chengdu, etc. are delayed from 2011

to 2012. The delays are mainly due to under-matured submarkets, leasing difficulties,

construction progress and developers’ strategies.

Figure 36: Ground floor rental trend

-

20

40

60

80

100

120

140

160

180

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

1Q2005=100) Chengdu effective prime rent

Source: Jones Lang LaSalle, Credit Suisse Research

Submarket analysis

There are four major submarkets in Chengdu: Chunxi Road & Yanshikou, Luomashi,

Second Ring Rd Commercial Loop, and City South New Development Zone. Details are

summarised as below:

13 December 2012


Figure 37: Chengdu submarket summary

Emergence DS GFA SM GFA

Retail Submarkets Year (000 sqm) (000 sqm) Major Developers and Operators, Existing and Future

Chunxi Road & Yanshikou 1989 490 120 Wangfujing, Yanlord, Renhe, Lan Kwai Fong, Chicony, Far Eastern

Luomashi 1996 20 430 Quanxing, Chengdu He Neng New City Plaza, Qianjiang Yingtong, R&F

2nd Ring Rd Commercial Loop 2003 240 970 SM Group, Capita Retail, GTC, Wanda, Renhe, Longfor, Lippo, Suning

City South New Development Zone 2011 50 0 Jinruitai Group


Submarket study 1—Second Ring Rd Commercial Loop (Chenghua part)

The second Ring Rd Commercial Loop follows Chengdu’s Second Ring Road, across five

urban districts. It is still a new developing retail market compared to Chunxi Road &

Yanshikou, and Luomashi. The shopping malls and department stores mainly serve the

needs of surrounding residents.

Currently, there are three department stores with total retail GFA of around 83,722 sqm

and four shopping malls with total retail GFA of around 556,000 sqm in Second Ring Rd

Commercial Loop (Chenghua part) submarket. There will be five shopping malls with total

retail GFA of 678,586 sqm to be opened during 2013–2017. We expect the local supply

and demand to be relatively balanced over 2012–14.

Figure 38: Second Ring Rd Commercial Loop (Chenghua Part) submarket

Retail GFA

Label Type Project 项目名称 Completion (sqm) Developer

A DS Beijing Hualian (ShuangQiao Zi Store) 北京华联双桥子店 2004 20,000

C DS Ito-Yokado ( Jianshe Rd Store) 伊藤洋华堂建设路店 4Q09 32,000 Sichuan Tonghui 四川同辉实业

DS Chengdu Hualian 成都华联 3Q10 31,722 Chengdu Hualian

B SM SM City SM广场 3Q06 180,000 SM Group

D SM Paradise Walk (Sanqianji) 龙湖三千集 3Q10 50,000 Longfor Group

E SM MIXc 万象城 2Q12 244,000 China Resources Land

F SM Mid-Town 财富又一城 2Q12 82,000 Sun-Top

SM Chengdu 339 成都 339 2013 84,000 Chengdu Fulai Real Estate

SM WECity 环球汇 2015 124,586 KWG and Hong Kong Land

G SM International Commercial Centre 环球贸易广场 2016 120,000 SHKP, Henderson Land and Wharf

SM Longemont Shopping Center 龙之梦购物中心 2017 350,000 Perenial and Summit Group

SM Lotte World 乐天大世界-攀成钢地块 2017 TBC Lotte Group


13 December 2012



Source: Google map, Credit Suisse estimates


0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

Before 2011 2011 2012 2013 2014 2015 forward

(mn sqm) Second Ring Rd Commercial Loop (Chenghua part) pipeline - SM

Second Ring Rd Commercial Loop (Chenghua part) pipeline - DS and others


Submarket study 2 – City South New Development Zone

City South New Development Zone is a new developing submarket. The government

successfully attracted many shopping mall developers into this area in the past few years.

City South New Development Zone has access to Metro Line 1 and the Third Ring Road.

It will mainly serve the needs of people from surrounding emerging residential and office

buildings in this area.

Currently, there is one department store with total retail GFA of around 50,000 in City

South New Development Zone. There will be nine shopping malls and one department

store with total retail GFA of 1,326,188 sq m to be opened during 2013-16. Some of the

upcoming shopping malls are very close to each other, so may face fierce pre-leasing

competition in future.

13 December 2012


Figure 41: City South New Development Zone submarket

Label Type Project 项目名称 Completion Retail GFA (sqm) Developer

DS Ito-Yokado (City South New

Development Zone Store)

伊藤洋华堂南部新区店 4Q11 50,000 Jinruitai Group

SM 9-Square 九方 4Q12 85,601 CATIC Real Estate

A SM Master Max 首座 MAX 2013 64,000 Dading Property

B SM Moi Retail 茂业中心 2013 60,000 Moi Group

C SM Aux Plaza 奥克斯商业广场 2013 200,000 Aux Real Estate

D SM Palm Spring International Centre 棕榈泉国际中心 2013 40,000 Palm Spring

E SM New Century Mall of Global 新世纪环球购物中心 2013 400,000 Chengdu Exhibition and Tourism

DS OCC 成都地铁控制中心大楼 2014 26,587 Chengdu Metro

SM Renhe Spring International Plaza 仁和春天国际广场 2015 150,000 Renhe Group

SM Magic Cube 大魔方 2016 120,000 Chengdu Media Group

SM Intime Center 银泰购物中心 2016 180,000 Intime Group



Source: Google map, Credit Suisse


0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

Before 2011 2011 2012 2013 2014 2015 forward

(mn sqm) New South Area pipeline - DS and others New South Area pipeline pipeline - SM


13 December 2012


Companies Mentioned (Price as of 11-Dec-2012)

AVIC Real Estate (000043.SZ, Rmb5.77) Capitaland (CATL.SI, S$3.71) CapitaMalls Asia (CMAL.SI, S$1.98, OUTPERFORM, TP S$2.14) China Resources Land Ltd (1109.HK, HK$20.95, OUTPERFORM, TP HK$23.8) COFCO Property (000031.SZ, Rmb3.89) Guangzhou R&F Properties Co Ltd (2777.HK, HK$12.74) Henderson Land Dev (0012.HK, HK$55.05) Hualian Dep (000882.SZ, Rmb2.9) Hongkong Land Holdings (HKLD.SI, $6.91) Intime Department Store Group Company Ltd (1833.HK, HK$9.6) KWG Property Holding Limited (1813.HK, HK$5.54) Longfor (0960.HK, HK$14.84) Parkson Retail Group Ltd. (3368.HK, HK$6.05) PCRT (PCRT.SI, S$0.515) Renhe Commercial (1387.HK, HK$0.52) Shui On Land (0272.HK, HK$3.96) Sino-Ocean Land Holdings Ltd (3377.HK, HK$5.51) Sun Hung Kai Properties (0016.HK, HK$116.7) Suning Universal (000718.SZ, Rmb6.8) Swire Properties Limited (1972.HK, HK$25.45) Wanfujing (600859.SS, Rmb21.92) Wharf Holdings (0004.HK, HK$59.0) Yanlord Land Group (YNLG.SI, S$1.4)

Disclosure Appendix

Important Global Disclosures

Yvonne Voon and Jinsong Du, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

Price and Rating History for China Resources Land Ltd (1109.HK)

1109.HK Closing Price Target Price

Date (HK$) (HK$) Rating

11-Jan-10 16.88 24.00 O *

19-May-10 14.04 17.00

25-Oct-10 15.74 15.70 U

14-Feb-11 13.18 14.80 N

22-Aug-11 11.84 14.00

21-Sep-11 9.13 12.50

05-Dec-11 12.72 12.30

28-Feb-12 15.06 13.30

12-Mar-12 13.88 17.00 O

04-May-12 14.66 17.60

13-Jun-12 15.70 17.90

18-Jun-12 15.74 19.00

10-Jul-12 16.02 19.40

20-Aug-12 14.80 19.00

22-Aug-12 14.92 19.10

19-Nov-12 18.72 23.80

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

U N D ERPERFO RM

N EU T RA L

13 December 2012


Price and Rating History for CapitaMalls Asia (CMAL.SI)

CMAL.SI Closing Price Target Price

Date (S$) (S$) Rating

08-Jan-10 2.43 2.66 N *

04-Feb-10 2.28 2.59

22-Jul-11 1.45 1.78

26-Aug-11 1.31 1.78 O

19-Oct-11 1.25 1.77

10-Feb-12 1.48 1.82

26-Apr-12 1.56 *

02-Jul-12 1.58 1.93 O

26-Oct-12 1.80 2.14

* Asterisk signifies initiation or assumption of coverage.

N EU T RA L

O U T PERFO RM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealan d stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

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Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

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*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 42% (53% banking clients)

Neutral/Hold* 39% (48% banking clients)

Underperform/Sell* 15% (44% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

13 December 2012


Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html

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Price Target: (12 months) for CapitaMalls Asia (CMAL.SI)

Method: Our S$2.14 target price for CapitaMalls Asia is calculated based on a 15% discount to the RNAV of S$2.51 which uses the sum-of-the-parts method and estimating China properties valued at 8% capitalisation rates, Singapore properties valued at 5-5.6%, India, Malaysia and Japan properties at book, listed REITs at market prices, management business at EBIT multiple, and development premium.

Risk: Risks to our S$2.14 target price for CapitaMalls Asia are longer-than-expected gestation period for its immature properties, property cycles, policy risks due to the geographic spread of CMA, especially given its exposure in emerging cities in China and India, competition for land and market share in the relevant cities, and volatility in credit and capital markets given its capital intensity and capital recycling business model.

Price Target: (12 months) for China Resources Land Ltd (1109.HK)

Method: Our 12-month target price of HK$23.80 for China Resources Land (CRL) is set at a 30% discount to our 12-month forward NAV estimate including the assumption of an asset injection by its parent holding company. CRL is one of a few Chinese property companies that has a sizeable exposure in investment properties and a proven track record in managing commercial assets, making it the prime beneficiary of yield compression. Thus, we believe deserves to trade at a relatively low discount.

Risk: Key risks to China Resources Land achieving our HK$23.80 12-month target price include: (1) completion delays, (2) unexpected macro policies targeting the property sector in China and (3) uncertainties on potential asset injections from its parent company. Currently, CR Holdings is on our restricted list and we are not permitted to comment on any transactions related to the company.

Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (CMAL.SI, 1109.HK) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (CMAL.SI) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (CMAL.SI) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (CMAL.SI, 1109.HK) within the next 3 months.

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (CMAL.SI, 1109.HK) within the past 12 months

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

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As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

13 December 2012


Credit Suisse (Hong Kong) Limited ......................................................................................................................................................... Jinsong Du

Credit Suisse AG, Singapore Branch .................................................................................................................................................. Yvonne Voon

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683.

13 December 2012

China Shopping Mall Sector PY0655.doc

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In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

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