Central Pattana Public Company Limited Management's Discussion and Analysis Consolidated Financial Results: 3Q08 and 9M08 ended September 30, 2008 Overall Performance Central Pattana Public Company Limited ("CPN") reported its 3Q08 consolidated net profit of 572.5 MB, increased by 38.9% y-o-y and 10.2% q-o-q.Operating profit also showed a solid growth of 30.7% y-o-y and 13.5% q-o-q.Key contributors were steady increased revenue and lower marketing and promotion expenses. Consolidated total revenue registered a growth of 11.9% y-o-y and 1.3% q-o-q to 2,160.3 MB, supported by continuous increases in rental rates and service income in addition to higher occupancy rates at CentralPlaza Pinklao,CentralPlaza Rattanathibet and The Offices at CentralWorld. On a nine-month basis, results in the 9M08 showed an impressive growth with a consolidated net profit of 1,709.3 MB, up 35.3% y-o-y, and total revenue of 6,383.0 MB, up 12.1% y-o-y. As for the operational performance, CPN was able to achieve rental growth for its retail space by 5.3% y-o-y to an average 1,281 Bt/sqm/mth with a stronger occupancy rate of 97%,compared to 95% in the preceding quarter. For its office properties, take-up rate maintained at 94% in the quarter. Albeit stagnant economy weighted by an increasing political tension, CPN performed reasonably well and its results were proved resilient. This was owing to a) organic growth through pricing mechanism and property development expertise and b) strategic tenant-mixed management.Amidst the sluggish consumption, recurring income from fixed rent contracts,representing 85% of CPN's total leasable space, secured majority of the company's income. Meanwhile, efficient cost management through top-line driven and cautious investment are equipped to shield the company from further downside risks. However a degree of exposure remains given that rental growth on the fixed rent contracts and income from revenue-sharing contracts line ahead on economic conditions. On the development front, global liquidity crisis has impacted CPN in two folds. Firstly, fund raising through CPN Retail Growth Property Fund ("CPNRF") has been delayed due to unfavorable market conditions; hence, CPN financial structure has been diverted from the plan. Secondly, CPN now takes a more defensive stance in terms of business expansion.Nonetheless, the development plans for four under-construction projects namely CentralPlaza Chaengwattana, CentralFestival Pattaya Beach, CentralPlaza Chonburi, and CentralPlaza Khon Kaen remain intact funding through long-term loans from banks, thanks to the company's strong track record and its A+ credit rating. On one hand,CPN believes that the unfavorable global environment could bring good opportunity to the company in terms of low construction and development cost.For other projects in pipeline, CPN plans to revisit criteria such as demand/supply, construction cost, and total return maximization to ensure prudent investment. Table 1: Consolidated Results Summary Consolidated 3Q07 2Q08 3Q08 YoY % QoQ % 9M07 9M08 YoY % Result Chg Chg Chg (Bt mil) Rental & service 1,930.7 2,132.0 2,160.3 11.9% 1.3% 5,696.1 6,383.0 12.1% income and F & B sales Gross profit 769.2 952.9 936.1 17.6% (1.8%) 2,364.7 2,825.7 19.5% Operating profit 643.4 740.6 840.7 30.7% 13.5% 1,955.3 2,401.1 22.8% Net profit 412.1 519.3 572.5 38.9% 10.2% 1,263.2 1,709.3 35.3% EPS (Bt) 0.19 0.24 0.26 38.9% 10.2% 0.58 0.78 35.3% Operational Performance Summary As of September 30,2008 total leasable area stood at 713,657 sqm (relatively flat y-o-y and q-o-q),which includes 563,004 sqm of retail space, 144,280 sqm of office space, and 6,373 sqm of residential space.The leasable area mentioned above excludes that of CentralPlaza Rama 2 and CentralPlaza Ratchada-Rama 3, totaling 133,376 sqm, as the two properties were transferred to CPNRF which CPN acts as the property manager. In 3Q08, retail properties recorded an improved performance with an average occupancy rate of 97%, compared to 95% in the preceding quarter. CentralPlaza Pinklao showed an exceptional growth in occupancy rate of 99%, increased from 91% in the previous quarter,after the openings of new anchors "Fitness First" (moved from Pinklao's Tower A office) and "SB Furniture." Occupancy rate of CentralWorld marginally improved to 92% in the quarter following openings of a mini anchor "Forever 21" and other retail fashion outlets. Rental rate maintained its upward momentum as rate increases were achieved from renewals and new leases at almost all properties. In 3Q08, effective rental rate stood at 1,281 Bt/sqm/mth,up 5.3% y-o-y. The effective rate has taken into account special rental discount given to groups of tenants at CentralWorld. Take-up rate of office properties maintained at an average of 94%, unchanged from the previous quarter. CentralWorld's office showed a strong improvement with a take-up rate of 96%,up from 94% in the preceding quarter. Table 2: Operation Statistics Retail Malls Net Leaseable Occupancy Rate (%) Area (Sqm.) 3Q07 2Q08 3Q08 Ladprao 55,562 100% 99% 99% Ramindra 17,159 92% 99% 99% Pinklao 55,644 92% 91% 99% Pattaya 15,227 100% 100% 100% Ratchada-Rama3 18,192 100% 100% 100% Chiangmai 76,321 98% 99% 99% Bangna 57,392 99% 98% 98% Rama2 5,937 100% 100% 100% Rattanathibet 76,978 96% 98% 99% CentralWorld 184,592 90% 91% 92% Total 563,004 95% 95% 97% Offices Net Leaseable Occupancy Rate (%) Area (Sqm.) 3Q07 2Q08 3Q08 Ladprao 17,719 96% 99% 99% Pinklao A 22,426 92% 94% 86% Pinklao B/1 11,334 75% 84% 84% Bangna 10,007 96% 100% 100% CentralWorld 82,794 94% 94% 96% Total 144,280 93% 94% 94% Note:/1 Pinklao B completed its conversion of apartment building into office building in 1Q 2006. Financial Performance Summary Total Revenues Total revenues consisted of rental & service income and food & beverage sales. In 3Q08,CPN recorded consolidated total revenue of 2,160.3 MB, up 11.9% y-o-y. Rental & service income grew 11.2% y-o-y to 2,048.5 MB. This improvement was due to four distinct sources; a) Increased service income after adjustment of common area, air-conditioning, and maintenance ("CAM charge") rate in January 2008. b) Higher contribution from CentralWorld upon cutting down special rental discount. c) Rental growth achieved at all properties. d) Higher occupancy rates at CentralPlaza Rattanathibet and CentralPlaza Pinklao upon openings of anchor and retail shops after completions of their enhancement projects. Food & beverage business registered total sales of 111.8 MB, gaining 25.8% y-o-y, mainly from the addition of new food center at CentralPlaza Ratchada-Rama 3 and higher contributions from food center at CentralPlaza Bangna. On a q-o-q basis, total revenues posted a marginal growth of 1.3%, owing to a 2.0% growth in rental & service income. Food & beverage sales declined by 9.0% after a closure of old food center at CentralPlaza Pinklao at the end of June 2008. Other income noted an increased of 40.9% y-o-y and 49.8% q-o-q, mainly from an additional property tax income at CentralWorld and a non-recurring renovation (charge back) income of 39.9 MB at CentralPlaza Bangna. These were the costs charged back to tenants and booked in the CPN's financial statement as other incomes. Total Costs Total costs comprise utilities, depreciation and amortization expenses of rented properties,on-site personnel costs, repair & maintenance expenses, property tax and operating cost of food center. Total costs in 3Q08 amounted to 1,224.2 MB, up 7.9% y-o-y and 3.8% q-o-q,while cost of rental & service stood at 1,130.5 MB, up 6.1% y-o-y and 4.7% q-o-q. The main contributors were additional property tax at CentralWorld previously mentioned and higher depreciation and amortization upon further completion of CentralWorld total project. Cost of food & beverage soared 36.7% y-o-y, due to higher supply costs. Compared to the previous quarter,cost of food & beverage declined 5.8% q-o-q, which was in-line with the decrease in food & beverage sales as previously mentioned. Total Operating and Administration Expenses Total operating and administration expenses constitute expenses on personnel, marketing and promotion costs, office supplies, professional fees, depreciation and amortization of office equipments. In 3Q08, total operating and administration expenses increased by 7.3% y-o-y to 359.6 MB, as a result of higher personnel expenses from an increase in number of employees to support business expansion and lower marketing and promotion expenses which declined by 15.1% y-o-y. On a q-o-q basis, an exceptional decline in marketing and promotion expenses compared to a high base in 2Q08 resulted in an 8.3% q-o-q drop in 3Q08 total operating and administration expenses. Since the beginning of this year, CPN's marketing and promotion expenses were managed through top-line driven basis with a 2008 budget of 5.0% of total revenues. For 3Q08 and 9M08,the expenses were 4.8% and 4.9% of the corresponding total revenues, respectively. Net Profit 3Q08 consolidated net profit climbed 38.9% y-o-y and 10.2 % q-o-q to 572.5 MB. The key drivers remained the organic growth of the core business and the decline in marketing and promotion expenses as previously mentioned. Table 3: Financial Ratios Key Financial Ratios 3Q07 2Q08 3Q08 YoY Chg QoQ Chg Liquidity ratio Current ratio (times) 1.7 0.4 0.6 (1.2) 0.1 Quick ratio (times) 1.5 0.3 0.5 (1.0) 0.2 Cash generate from operation 1.1 0.7 0.5 (0.6) (0.2) ratio(times) Days account receivable (days) 19.8 20.7 21.8 1.9 1.1 Profitability ratio Gross profit margin (%) 41.2% 44.7% 43.3% 2.1% (1.4%) Operating profit margin (%) 27.8% 32.6% 36.8% 9.0% 4.2% Net profit margin (%) 19.5% 22.5% 23.6% 4.1% 1.1% Return on equity (%) 13.3% 15.3% 16.6% 3.2% 1.3% Efficiency ratio Return on assets (%) 4.6% 5.6% 5.9% 1.3% 0.3% Return on fixed assets (%) 6.1% 6.9% 7.2% 1.0% 0.3% Assets turnover (times) 0.2 0.2 0.2 0.0 (0.1) Financial policy ratio Obligation Recovery Service 0.6 0.3 0.7 0.1 0.4 /1(times) Net debt to equity (times) 0.6 0.8 0.8 0.2 0.0 Interest coverage/1(times) 5.1 8.0 10.1 5.0 2.0 Note: /1 Cash generated from operation excludes cash payment of endorsed promissory notes. Financial Position as at September 30, 2008 Assets As at September 30, 2008, CPN reported consolidated total assets of 39,934.0 MB, increased by 2,729.3 MB, or 7.3% from the end of FY2007. The key contributors are the followings. a) An increase in Property and Equipment (representing 80.9% of total assets) by 3,531.1 MB from new land acquisition in Chiangmai Province (north of Thailand) and construction in progress of under-developing projects. b) A decrease in Cash and cash equivalents and Current investments by 1,000.1 MB from land acquisition and construction payment of combined projects. Liabilities Consolidated total liabilities stood at 25,231.7 MB, increased by 1,666.3 MB, or 7.1%, from the end of FY2007. In 9M08, long-term debts of 765.3 MB were repaid and new debts of totaling 3,000 MB were issued to fund new projects.As at September 30, 2008, interest-bearing debts stood at 14,249.6 MB, increased by 2,204.7 MB from FY2007 and represented 56.5% of total liabilities. Shareholders' Equity Consolidated total shareholders' equity registered at 14,702.3 MB with a total retained earnings of 9,830.7 MB, representing 66.9% of total shareholders' equity.Compared to that of FY2007, total shareholders' equity increased by 1,063.0 MB, primarily due to the following reasons. a) 9M08 net profit of 1,709.3 MB. b) Dividend payment of 718.9 MB (0.33 Baht/share). c) Net increase of 98.5 MB from realizing negative goodwill as gains to retained earnings as a result of a change in accounting policy* (* see Note 15 to the interim financial statements for the three-month and nine-month period ended September 30, 2008) Table 4: Financial Position Balance Sheet (Bt mil) FY07 2Q08 3Q08 %Chg %Chg from FY07 QoQ Total Assets 37,204.6 37,430.2 39,934.0 7.3% 6.7% Total Liabilities 23,565.3 23,288.2 25,231.7 7.1% 8.3% Interest-Bearing Debts 12,044.9 12,304.7 14,249.6 18.3% 15.8% Shareholder's Equity 13,639.3 14,142.0 14,702.3 7.8% 4.0% Retained earnings 8,720.6 9,258.2 9,830.7 12.7% 6.2% Capital Structure As plan to raise fund through the property fund vehicle "CPNRF" has to be postponed due to unfavorable market sentiment, 3,000-MB new debts were raised to support business expansion. These include 1,500-MB of short-term loan (average interest rate of 3.80% p.a.) and 1,500-MB unsecured bond (fixed interest rate of 4.80% p.a.). This brought up net interest-bearing debt to equity ratio to 0.8 time, compared to 0.6 time at the end of FY2007. Total CAPEX for 9M08 was 4,975 MB, representing 69.5% of the revised FY2008 CAPEX budget of 7,160 MB. The remaining committed CAPEX will be funded by operating cash flows and through debt financing. Noted that a long-term credit line of 4,000 MB (7-year term at interest rate of MLR-2.0% pa ) was granted to CPN. The first drawdown is expected in 4Q08 to repay short-term loans and finance under-construction projects. As at September 30, 2008, interest-bearing debts comprised of 75% fixed and 25% floatinginterest rate. Interest expenses and financial charges for 3Q08 amounted to 128.6 MB,slightly increased from 122.0 MB in the previous quarter, due to the new debts. Weighted average cost of debt stood at 5.0% p.a., slightly declined from 5.5% p.a. in FY2007 and 5.2% p.a. in 2Q08. Change in Accounting Policy With the implementation of revised Thai Accounting Standard No.43 (TAS No.43) "Business Combinations",starting from January 1, 2008, the accounting for any excess of acquirer's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities over cost has been changed from the previous "negative goodwill" to realized profit or loss. The effect of the change in accounting policy on Consolidated Balance Sheet as at September 30, 2008 is highlighted as followings. Consolidated Balance Sheet as at September 30, 2008 a) A decrease of 112.6 MB in Negative goodwill with a corresponding increase in the Unappropriated retained earnings. b) An increase of 98.5 MB in Intangible assets with a corresponding increase in the Unappropriated retained earnings. Noted that the change had no effect on the Company's Balance Sheet.(see Note 15 to the interim financial statements for the three-month and nine-month period ended September 30,2008)