Central Pattana Public Company Limited Management's Discussion and Analysis Consolidated Financial Results: 2Q09 and 1H09 Overall Performance Central Pattana Public Company Limited ("CPN") reported its 2Q09 consolidated total revenues (rental & service income, revenues from hotel operations and food & beverage sales) of 2,751.8 MB, increased 29.1% y-o-y. The increase was mainly due to additional revenues from four new projects - CentralPlaza Chaengwattana opened in November 2008, CentralFestival Pattaya Beach opened in January 2009, CentralPlaza Udon Thani acquired in April 2009, and CentralPlaza Chonburi opened in May 2009. Consolidated net profit increased by 13.0% y-o-y to 587.0 MB. The net profit incorporated with a non-recurring after tax gain of approximately 46.2 MB from an acquisition of additional investment units in The Thai Business Fund 4, a subsidiary. Without the non-recurring item, 2Q09 consolidated net profit would have been 540.1 MB, up 4.0% y-o-y, primarily from the new projects previously mentioned. On a q-o-q basis, consolidated total revenues increased by 5.9%, mainly due to a full quarter revenues from CentralFestival Pattaya Beach and additional revenues from CentralPlaza Udon Thani and CentralPlaza Chonburi. Without the non-recurring item, 2Q09 consolidated net profit would have declined by 10.5% q-o-q attributed to a) lower margin during the initial stage of CentralPlaza Chonburi, b) additional interest expenses from new debts, and c) higher marketing & promotional expenses to promote the newly opened centers. On a half-year basis, consolidated total revenues grew 26.7% y-o-y to 5,349.9 MB from the four new projects. Consolidated net profit, excluding the non-recurring item in 2Q09, marginally increased 0.6% y-o-y to 1,143.3 MB largely from lower margin of the new projects and the capitalization of interest payment in 1H08. As for operational front, total leasable area increased by 12.8% q-o-q to 772,283 sqm after the acquisition of CentralPlaza Udon Thani (49,354 sqm) and the opening of CentralPlaza Chonburi (39,503 sqm). Occupancy rate of retail space in 2Q09 averaged 96% while that of the office space stood at 85%. Table 1: Consolidated Results Summary Consolidated Result 2Q08 1Q09 2Q09 YoY QoQ 1H09 YoY (Bt mil) %Chg %Chg %Chg Rental&service, 2,132.0 2,598.1 2,751.8 29.1% 5.9% 5,349.9 26.7% hotel,and F&B income Gross profit 952.9 1,080.6 1,085.6 13.9% 0.5% 2,166.2 14.6% Operating profit 740.6 871.6 888.7 20.0% 2.0% 1,760.3 12.8% Net profit 519.3 603.2 587.0 13.0% (2.7%) 1,190.2 4.7% EPS (Bt) 0.24 0.28 0.27 3.0% (2.7%) 0.55 4.7% New Developments Upon improving market condition the plan to raise fund through CPN Retail Growth Property Fund ("CPNRF") has been reactivated with an expected fund raising in 4Q09. In the meantime, expansions have been funded through internal cash flow and long-term borrowings. After the recent openings of CentralPlaza Chaengwattana, CentralFestival Pattaya Beach, and the office tower at CentralPlaza Chaengwattana, in April 2009 CPN acquired CentralPlaza Udon Thani (previously Charoensri Complex), a mixed-use development of shopping plaza of 49,354-sqm leasable area and Centara Udon Thani Hotel (previously Charoensri Grand Royal), a 255-room hotel, and commenced the operation of a new green-field project - CentralPlaza Chonburi - in May 2009. As for the other two under-developing projects - CentralPlaza Khon Kaen, and CentralPlaza Rama IX - construction is progressing as per schedule. The funding came from internal cash flow, bond issuance and long-term bank loans. Thanks to the company's strong track record and its A+ credit rating, CPN has secured long-term loans from banks with credit line of totaling 8,000 MB and issued 4,200-MB of unsecured bonds. (*Please refer to session: "Capital Structure" for more details) Operational Performance Summary Currently CPN managed 14 projects, comprising of 14 shopping centers, six office towers, two residential projects, and one hotel. As at June 30, 2009, CPN managed retail leasable area of totaling 905,596 sqm (up 30.2% y- o-y and 10.7% q-o-q). This includes that of CentralPlaza Rama 2 and CentralPlaza Ratchada- Rama 3, totaling 133,313 sqm which have been transferred to CPN Retail Growth Leasehold Property Fund ("CPNRF") of which CPN acts as the property manager. In 2Q09, occupancy rate for CPN's retail malls averaged 96%. Occupancy rate of the newly opened CentralPlaza Chonburi stood at 83% while retail space of CentralPlaza Udon Thani was fully occupied. Effective rental rate of retail space averaged 1,251 Bt/sqm/mth, down 1.8% y-o-y and down 1.7% q-o-q. This was attributed to the lower rental rates of the new provincial malls in addition to special rental discounts given to tenants at the new malls during their initial stage. For comparative purpose, excluding the four new centers, effective rental rate averaged1,293 Bt/sqm/mth, up 1.5% y-o-y. Occupancy rate for CPN's offices averaged 85%, declined from 95% in 2Q08 and up from 84% in 1Q09. This is mainly due to low take-up rate at the initial stage of the new Chaengwattana's office (opened in March 2009), which stood at 20% as at 2Q09 (up from 8% in 1Q09). The remaining space is expected to be leased out by 2011. Table 2: Operation Statistics Retail Shopping Net Leaseable Occupancy Rate (%) Centers Area (Sqm.) 2Q08 1Q09 2Q09 Ladprao 55,583 99% 97% 97% Ramindra 17,159 99% 99% 100% Pinklao 54,220 91% 97% 98% Pattaya Center 15,225 100% 100% 99% Ratchada-Rama3 18,192 100% 99% 99% Chiangmai 76,108 99% 99% 99% Bangna 57,533 98% 98% 98% Rama2 5,937 100% 100% 100% Rattanathibet 77,244 98% 98% 97% CentralWorld 184,592 91% 97% 97% Chaengwattana 65,613 n/a 92% 93% Pattaya Beach Festival 56,020 n/a 88% 89% Udon Thani 49,354 n/a n/a 100% Chonburi 39,503 n/a n/a 83% Total 772,283 95% 96% 96% Offices Net Leaseable Occupancy Rate (%) Area (Sqm.) 2Q08 1Q09 2Q09 Lardprao 17,719 99% 97% 96% Pinklao A 22,426 94% 92% 93% Pinklao B 11,334 89% 92% 87% Bangna 10,007 100% 92% 92% CentralWorld 82,796 94% 95% 94% Chaengwattana 19,462 n/a 8% 20% Total 163,744 95% 84% 85% Financial Performance Summary Total Revenue In 2Q09 consolidated total revenues grew 29.1% y-o-y to 2,751.8 MB. These comprised of; a) Rental and service income of 2,534.8 MB, up 26.2% y-o-y, mainly from additional income of the new projects - CentralPlaza Chaengwattana, the office at Chaengwattana project, CentralFestival Pattaya Beach, CentralPlaza Udon Thani, and CentralPlaza Chonburi. b) Revenues from hotel operations of 36.3 MB from the newly acquired Centara Udon Thani. c) Food and beverage sales of 180.7 MB, up 47.1% y-o-y, mainly from the four new food parks at CentralPlaza Chaengwattana, CentralFestival Pattaya Beach,CentralPlaza Udon Thani, and CentralPlaza Chonburi. Likewise, on a q-o-q basis, revenue from rental & service, hotel business and food & beverage increased 22.9% supported by additional income from CentralPlaza Udon Thani and Centara Udon Thani, and CentralPlaza Chonburi. Total Cost Total cost of rental & service, hotel operations and food & beverage includes utilities, depreciation and amortization of rented properties, on-site personnel, repair & maintenance, and property tax. In 2Q09 consolidated total cost amounted to 1,666.2 MB, up 41.3% y-o-y, mainly attributed to additional operating costs and depreciation and amortization of the new projects previously mentioned in addition to higher sub-lease payment of CentralPlaza Lardprao after a renewal of its sub-lease agreement. On a q-o-q basis, total costs increased by 9.8% primarily from the two new projects coming online in 2Q09. Total Operating and Administration Expenses Total operating and administration expenses include expenses on personnel, marketing and promotion, office supplies, professional fees, depreciation and amortization of office equipments. In 2Q09, total operating and administration expenses registered 453.2 MB, up 15.6% y-o-y and 10.4% q-o-q, reflected a significant increase in advertising and promotion expenses to promote and boost visitor traffic of the four new shopping centers and higher personnel expenses from an increase in number of employees to support the new projects. Net Profit 2Q09 consolidated net profit registered at 587.0 MB, up 13.0% y-o-y but down 2.7% q-o-q. The net profit incorporated with the non-recurring after tax gain of approximately 46.2 MB from the acquisition of additional investment units in The Thai Business Fund 4, a subsidiary. Without the non-recurring item, 2Q09 consolidated net profit would have registered 540.1 MB, up 4.0% y-o-y, primarily from the new projects previously mentioned. Compared to the previous quarter, excluding the non-recurring gain, 2Q09 net profit would have declined 10.5% primarily due to a) the lower margin at initial stage of CentralPlaza Chonburi, b) additional interest expenses from the new debts, and c) higher marketing & promotional expenses to promote the new centers. Table 3: Profitability Ratios Profitability Ratios 2Q08 1Q09 2Q09 Gross profit margin (%) 41.9% 39.2% 36.5% Operating profit margin (%) 26.8% 24.3% 22.3% Net profit margin (%) 21.7% 20.9% 19.0% Return on equity (%) 15.3% 16.3% 15.6% Financial Position Assets As at June 30, 2009, consolidated total assets registered 49,218.1 MB, increased by 5,434.3 MB or 12.4% from the position as at the end of FY2008. This mainly reflected a) the acquisition of Charoensri Complex and Chroensri Grand Royal Hotel, b) buildings and equipments of the newly opened projects, and c) construction in progress of under- developing projects. Liabilities Consolidated total liabilities stood at 34,187.6 MB, increased by 5,577.1 MB or 19.5% from the position as at the end of FY2008. This mainly reflected a) an issuance of 4,200-MB unsecured bonds, b) 1,611.9 MB of account payable for the leasehold right (up-front fee) of CentralPlaza Lardprao, and c) 970.5 MB of aval payable for the acquisition of Charoensri Complex and Chroensri Grand Royal Hotel and the purchase of additional investment units of the Thai Business Fund 4. Shareholders' Equity Consolidated total shareholders' equity was registered at 15,030.6 MB with total retained earnings of 10,560.5 MB, increased by 471.2 MB from that of FY2008. The increase was mainly attributed to 1H09 net profit and dividend payment of 719.0 MB (0.33 Baht/share). Table 4: Financial Position Balance Sheet (Bt mil) FY08 1Q09 2Q09 %Change FY08 Total Assets 43,783.8 46,360.7 49,218.1 12.4% Total Liabilities 28,610.5 30,586.7 34,187.6 19.5% Interest-Bearing Debts 16,445.1 16,160.0 19,311.1 17.4% Shareholder's Equity 15,173.3 15,774.0 15,030.6 (0.9%) Retained earnings 10,307.2 10,910.4 10,778.4 4.6% Capital Structure During 1H09, CPN repaid 4,704.0 MB of loans and raised 7,570.0 MB of new debts, which comprised of a) 4,200 MB of 4-yeared and 5-yeared unsecured bonds at interest rate of 4.50%-4.75% pa. b) 1,650 MB of 7-yeared bank loan at interest rate MLR-2.0% pa., and c) 1,720-MB of short-term loan. These resulted in an increase of interest-bearing debt to 19,311.1 MB. As at June 30, 2009, net interest-bearing debt to equity stood at 1.1x, up from 0.8x at the end of FY2008. Interest-bearing debt comprising of 64% fixed and 36% floating interest rate with a weighted average cost of debt of 4.5% per annum, compared to 5.2% of FY2008. CPN has secured 7-yeared bank loans (covering grace period of 2 years) with credit lines of 8,000 MB in total bearing interest rate of MLR-2.0% p.a. and pledged land, leasehold rights to land, and buildings of certain under-developing projects as collaterals. As of June 30, 2009 outstanding loans was 4,150 MB. Table 5: Key Financial Ratios Key Financial Ratios 2Q08 1Q09 2Q09 Liquidity ratio Current ratio(times) 0.4 0.5 0.6 Quick ratio(times) 0.3 0.4 0.4 Cash generate from operation ratio(times) 0.7 0.6 1.1 Days account receivable(days) 20.7 17.8 16.3 Efficiency ratio Return on assets(%) 5.6% 5.4% 4.9% Return on fixed assets(%) 6.9% 6.6% 6.3% Assets turnover(times) 0.2 0.2 0.3 Financial policy ratio Obligation Recovery Service/1(times) 0.3 0.4 0.4 Net debt to equity (times) 0.8 0.8 1.1 Interest coverage/1(times) 8.0 6.7 10.2 Note: /1 Cash generated from operation excludes cash payment of endorsed promissory notes