Central Pattana Public Company Limited Management's Discussion and Analysis Consolidated Financial Results: 4Q09 and FY09 Overall Performance In order to make an appropriate comparison between FY2009 and FY2008 performances, the evaluation should take into account the transfer of most of the assets at CentralPlaza Pinklao to CPN Retail Growth Leasehold Property Fund ("CPNRF") in November 2009 due to the financial lease of most of the property to CPNRF. There were four non-recurring items accounted in FY2009 financial results: 1) A gain of 66.0 MB from an acquisition of additional investment units in Thai Business Fund 4 in 2Q09. 2) A gain of 3,206.9 MB from the financial lease of CentralPlaza Pinklao to CPNRF in 4Q09. 3) A one-time income of 659.0 MB in 4Q09 (see notes to the financial statements for the years ended 31 December 2009 no.23). 4) A 100-MB sponsorship expense in 4Q09 for a development of a public park next to CentralWorld Project. Central Pattana Public Company Limited ("CPN") reported its 4Q09 net profit of 3,211.4 MB, gained 573.9% y-o-y and 483.9% q-o-q. Consolidated total revenues grew 189.7% y-o-y and 139.7% q-o-q to 7,021.8 MB. Excluding the non-recurring items (see above paragraph), total revenues would have been 30.2% and 7.7% higher than those of 4Q08 and 3Q09, respectively, while consolidated net profit would have gained 25.6% y-o-y and 8.8% q-o-q, mainly supported by new projects and improved performance of CentralWorld. For FY2009, consolidated net profit registered 4,951.6 MB, up 126.5% y-o-y, with a 68.5% y- o-y increase in total revenues to 15,686.6 MB. Without the non-recurring items previously mentioned, net profit would have been 6.2% higher than that of the previous year with a 26.8% growth in total revenues, primarily due to low margin at initial stage of newly opened projects. Noted that normally new project yields lower margin than the mature one. This is due to its relatively lower occupancy rate and special rental discount given to assist tenants at the newly opened mall during its initial stage. In spite of indirect effects from sluggish economy on shopping mall business, CPN's new projects performed reasonably well. This was owing to an effective cost management through top-line driven, which was executed in accordance with special rental discount. CPN's Board of Directors has proposed a Baht 0.58 per share (1,263.7 MB) dividend to be paid for the FY2009 performance, pending for approval at the shareholders' meeting on April 28, 2010. The dividend payment represents payout ratios of 40% of FY2009 normal net profit and 14% of one-time gains from the financial lease of most of the assets of CentralPlaza Pinklao to CPNRF. New Developments During the course of FY2009, CPN launched three new shopping centers and one office tower, and acquired one mixed-use project as follows; - CentralFestival Pattaya Beach, opened in January - Office tower at CentralPlaza Chaengwattana Project, opened in March - CentralPlaza Udonthani and Centara Udonthani, acquired in April - CentralPlaza Chonburi, opened in May - CentralPlaza Khonkean, opened in December As for the other two under-developing projects - Hilton Pattaya Beach Hotel (the hotel component of CentralFestival Pattaya Beach Project) and CentralPlaza Rama IX - construction is progressing as per schedule. In addition, one land bank in Chiangrai Province (north of Thailand) has been secured through an acquisition of Thaipat Property Company Limited in November 2009. Noted that there are approximately four green-field projects that are due to complete during the course of 2010 - 2012. These include 1) Hilton Pattaya Beach Hotel, 2) CentralPlaza Rama IX, 3) CentralFestival Chiangmai, and 4) CentralPlaza Chiangrai. Funding from operating cash flow, borrowings and fund raised through CPNRF. Operational Performance As at December 31, 2009 CPN managed 15 projects, comprising of 15 shopping centers (totaling 810,120 sqm of leasable area), 6 office towers (totaling 810,120 sqm of leasable area), 2 residential projects (totaling 62 units), and 1 hotel (255 guest rooms). The above leasable areas exclude retail area of CentralPlaza Rama 2, CentralPlaza Ratchada-Rama 3, and CentralPlaza Pinklao, totaling 157,310 sqm, and office area of totaling 33,762 sqm of Pinklao Tower A and B, which have been transferred to CPN Retail Growth Leasehold Property Fund ("CPNRF") of which CPN acts as the property manager. At the end of 4Q09, occupancy rate for CPN's retail space averaged 96% (relatively flat y-o-y and q-o-q). Effective rental rate of retail space averaged 1,251 Bt/sqm/mth (down 2.6% y-o- y and up 0.5% q-o-q). This was attributed to lower rental rates of 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 five new malls, effective rental rate was up 1.6% y- o-y and 1.0% q-o-q to an average of 1,312 Bt/sqm/mth. Occupancy rate for CPN's offices averaged 86%, unchanged from 3Q09, but lower than 94% of 4Q08. 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 26%. The remaining space is expected to be leased out by 2011. Table 1: Operation Statistics Retail Shopping Centers Net Leaseable Occupancy Rate (%) Area (Sqm.) 4Q08 3Q09 4Q09 Ladprao 55,583 97% 97% 97% Ramindra 17,159 100% 98% 100% Pinklao 37,463 98% 98% 98% Pattaya Center 15,227 100% 98% 98% Ratchada-Rama3 18,192 100% 100% 99% Chiangmai 76,006 99% 98% 99% Bangna 57,695 98% 98% 98% Rama2 5,937 100% 100% 100% Rattanathibet 76,910 98% 98% 99% CentralWorld 186,248 97% 96% 96% Chaengwattana 65,632 91% 92% 91% Pattaya Beach Festival 56,946 n/a 85% 89% Udon Thani 49,276 n/a 99% 98% Chonburi 39,785 n/a 89% 92% Khonkaen 52,061 n/a n/a 87% Total 810,120 97% 96% 96% Note: CentralPlaza Rama 2, CentralPlaza Ratchada-Rama 3, CentralPlaza Pinklao were partially leased out to CPNRF Offices Net Leaseable Occupancy Rate (%) Area (Sqm.) 4Q08 3Q09 4Q09 Ladprao 17,719 97% 98% 96% Bangna 10,007 97% 92% 95% CentralWorld 82,796 96% 94% 95% Chaengwattana 19,462 n/a 23% 26% Total 129,984 94% 85% 86% Note: Pinklao Tower A & B offices were leased out to CPNRF Financial Performance Total Revenues Rental and Service Income In property business, 4Q09 rental and service income registered 2,605.0 MB, grew 24.6% y- o-y, primarily attributed to additional contributions from the four new projects. On a q-o-q basis, rental and service income was marginally up 0.7%, mainly caused by the transfer of partial performance of CentralPlaza Pinklao to CPNRF since November 2009. In FY2009, rental and service income increased 25.0% y-o-y to 10,178.5 MB even after exclusion of partial performance of CentralPlaza Pinklao in the last two months of the year. The growth was mainly led by openings of the four new projects and continuous increase in rental rates at all properties. Food and Beverage Sales In food center business, 4Q09 food and beverage sales increased 24.6% y-o-y to 155.0 MB, mainly from food parks at the newly opened shopping centers. Compared to the previous quarter, income from this business was relatively flat, primarily due to weaker performance of food center at CentralPlaza Ladprao upon approaching its major renovation. FY2009 food and beverage sales registered 639.4 MB, up 40.1% y-o-y, owing to additional contributions from the food parks at new projects and improved performance of food centers at all properties upon improving market sentiment. Revenues from Hotel Operations Revenues from hotel operations have continued its upward momentum since the acquisition in April 2009. Despite a fall in occupancy rate, the revenue per available room (RevPAR) increased by 12.9% q-o-q. This led to a 7.0% q-o-q improvement in revenues to 41.4 MB in 4Q09. For FY2009, revenues from this business amounted to 116.4 MB. Other Income Other income consisted of incomes from costs charged back to tenants (such as property tax, insurance premiums, renovation costs, etc.), event sponsorships, and other non-recurring incomes. The FY2009 financial results incorporated with non-recurring incomes as follows; a) A gain of 66.0 MB from an acquisition of additional investment units in Thai Business Fund 4, a subsidiary, in 2Q09. b) A gain of 3,206.9 MB from the financial lease of partial assets of CentralPlaza Pinklao to CPNRF in 4Q09. c) A one-time income of 659.0 MB (see notes to the financial statements for the years ended 31 December 2009 no.23). These led to a 567.5% y-o-y increase in other income to 4,752.3 MB. Without the non- recurring items, FY2009 other income would have grown by 22.1% y-o-y, mainly from new projects and higher property management fee from CPNRF. Total Cost Total cost of rental & service and food & beverage include utilities, depreciation and amortization of rented properties, on-site personnel, repair & maintenance and property tax. In 4Q09 consolidated total cost amounted to 1,793.8 MB, up 34.6% y-o-y and 4.3% q-o-q. Likewise, FY2009 total cost increased by 37.0% y-o-y to 6,696.7 MB. These increases were primarily due to four distinct sources: a) Additional operating costs and depreciation and amortization expenses of the new projects previously mentioned. b) Additional operating cost of the new food centers ("Food Park") at the new projects. c) Higher sub-lease payment of CentralPlaza Lardprao Project after a renewal of its sub-lease agreement. d) Higher lease payment of CentralWorld Project in accordance with escalating lease payment structure. 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. Total operating and administration expenses for 4Q09 stood at 768.8 MB. The expenses included a sponsorship of 100.0 MB for the development of a public park next to CentralWorld Project. Excluding this extraordinary item, operating and administration expenses would have increased 28.6% y-o-y on new projects, and 51.7% q-o-q mainly from seasonal increases in personnel expenses and marketing and promotion expenses during year-end celebrations. For FY2009 without the sponsorship, total operating and administration expenses would have been 26.8% higher that that of the previous year, mainly from the openings of new projects. On the backdrop of stagnant economy and soft spending, CPN's marketing and promotion expenses were well managed through top-line driven basis. Excluding the one-time expenses of the opening celebrations of the new projects, marketing and promotion expenses amounted to 567.7 MB, increased by 23.0% y-o-y and representing 5.2% of total revenues, compared to 5.4% of the previous year. Net Profit Excluding the non-recurring items, consolidated net profit for 4Q09 would have been 598.5 MB, represented an increase of 25.6% y-o-y and 8.8% q-o-q, even after exclusion of partial performance of CentralPlaza Pinklao in the last two months of the quarter. Similarly, without non-recurring items, FY2009 net profit would have gained 6.2% y-o-y to 2,292.5 MB, mainly driven by additional contribution on new projects and improved performance of CentralWorld. Table 2: Consolidated Results Summary Consolidated Result 4Q08 3Q09 4Q09 YoY % QoQ % FY09 YoY % (Bt mil) Chg Chg Chg Total Revenues 2,423.8 2,929.4 7,021.8 189.7% 139.7% 15,686.5 68.5% Retail 1,864.4 2,360.8 2,366.7 26.9% 0.3% 9,254.3 27.8% Office 219.7 221.1 232.0 5.6% 4.9% 898.1 3.5% Hotel 0.0 38.7 41.4 n/a 7.0% 116.4 n/a F&B 124.4 156.6 155.0 24.6% (1.0%) 639.4 40.1% Other rental income 7.2 5.7 6.3 (12.8%) 9.6% 26.1 (15.2%) Other income 208.1 146.4 4,220.4 34.6% 4.3% 4,752.3 24.5% Gross profit 883.3 1,063.8 1,007.6 14.1% (5.3%) 4,237.6 14.3% Retail 785.0 948.4 868.2 10.6% (8.5%) 3,730.5 13.0% Office 79.2 68.2 89.6 13.1% 31.4% 330.8 1.9% Hotel 0.0 23.2 26.4 n/a 14.0% 70.6 n/a F&B 21.1 24.2 23.7 12.7% (2.0%) 106.6 28.2% Other rental income (2.0) (0.3) (0.3) n/a n/a (0.9)(291.8%) Operating profit 629.8 775.4 4,463.7 608.8% 475.7% 6,943.5 6.7% Net profit 476.5 550.0 3,211.4 573.9% 483.9% 4,951.6 126.5% Net Profit 476.5 550.0 598.5 25.6% 8.8% 2,292.5 6.2% Excluding Non- Recurring Incomes EPS (Bt) 0.22 0.25 1.50 585.6% 494.0% 2.27 126.5% Capital Structure During FY2009, a total of 2,500 MB in corporate bonds were refinanced and new debts of totaling 7,350 MB were issued to support business expansion. These include 5,200-MB unsecured bond (3-5 year term, bullet payment and fixed interest rate of 4.00-4.75% p.a.) and 2,150-MB long-term bank loan (7-year repayment term and floating interest rate of MLR- 2.0% p.a.). In addition, a net cash of approximately 3,900 MB was raised through subleasing of most of the assets at CentralPlaza Pinklao Project to CPNRF. Interest-bearing debts stood at 16,669.4 MB, grew by 1.4% from that of FY2008, while net interest-bearing debts increased by 10.7% to 14,128.4 MB. Interest expenses and financial charges for FY2009 amounted to 745.2 MB, increased by 37.1% from the FY2008 year-end, as there were capitalizations of new project interest payments in FY2008. Weighted average cost of debts declined to 4.7% per annum, compared to 5.2% in the FY2008. At the end of FY2009, interest-bearing debts comprised of 68% fixed and 32% floating interest rate. Net interest-bearing debt to equity ratio registered 0.7 times, compared to 1.1 times at 3Q09 and 0.8 times at the end of FY2008. Table 3: Financial Position Balance Sheet FY08 9M09 FY09 % Chg % Chg (Bt mil) YoY QoQ Total Assets 43,783.8 48,943.1 50,895.4 16.2% 4.0% Current Assets 5,392.5 3,477.9 3,937.2 (27.0%) 13.2% Property & Equipment 31,660.9 37,242.9 38,433.5 21.4% 3.2% (PP&E) Leasehold Right 3,312.1 4,635.1 4,443.1 34.1% (4.1%) Total Liabilities 28,610.5 33,366.8 31,887.3 11.5% (4.4%) Interest-Bearing Debts 16,445.1 19,814.3 16,669.4 1.4% (15.9%) Shareholder's Equity 15,173.3 15,576.3 19,008.1 25.3% 22.0% Retained earnings 10,307.2 11,328.4 14,539.8 41.1% 28.3% Table 4: Key Financial Ratios Key Financial Ratios 4Q08 3Q09 4Q09 FY08 FY09 Liquidity ratio Current ratio (times) 0.6 0.6 0.6 0.8 0.6 Quick ratio (times) 0.5 0.4 0.4 0.7 0.5 Days account receivable (days) 19.0 14.4 11.9 17.8 14.6 Profitability ratio Gross profit margin (%) 36.4% 36.3% 31.9% 39.8% 35.8% Net profit margin (%) 18.3% 18.2% 17.8% 21.9% 18.6% Return on equity (%) 13.4% 14.4% 14.0% 15.9% 14.1% Efficiency ratio Return on assets (%) 4.6% 4.5% 4.8% 5.4% 4.9% Financial policy ratio Net debt to equity (times) 0.8 1.1 0.7 0.8 0.7 Net debt to EBITDA (times) 2.9 3.3 2.7 2.9 2.7 Interest coverage /1 (times) 6.7 12.2 7.9 7.2 8.7 Note: /1Cash generated from operation excludes cash payment of endorsed promissory notes