Central Pattana Public Company Limited Management's Discussion and Analysis Consolidated Financial Results: 2Q10 Overall Performance Central Pattana Public Company Limited ("CPN") announced its 2Q10 interim financial statements with an auditor's qualified opinion on damages from the fire incidents at CentralWorld Shopping Complex, which have not yet been concluded. (Please refer to the Review Report of Certified Public Accountant to the financial statements for the quarter ended June 30, 2010.) In 2Q10, CPN reported its consolidated net profit of 164.5 MB, representing a 72.0% y-o-y and 82.7% q-o-q decrease. 2Q10 total revenues registered 2,486.0 MB, declined by 16.5% y-o-y and 24.4% q-o-q. The changes in the CPN's performance when comparing this quarter's performance to those of the previous quarter and the same period of last year were primarily due to the following distinct sources: 1) An absence of revenue from CentralWorld Shopping Center since the April 2010, due to the closure of the property. (See the "CentralWorld " section) 2) A one-month rent-free at The Offices at CentralWorld due to difficulty of access during political gatherings at nearby area. 3) A transfer of partial assets of CentralPlaza Pinklao and the two offices at CentralPlaza Pinklao Project to CPN Retail Growth Leasehold Property Fund ("CPNRF") since November 2009. 4) An inclusion of a one-time gain of 66.0 MB (42.6 MB net of tax) from an acquisition of additional investment units in the Thai Business Fund 4 in the 2Q09 performance. 5) Non-recurring incomes of totaling 340.0 MB (280.9 MB net of tax) incorporated in the 1Q10 financial results from reversal of a bad debt and its associated interest income. The first distinction had the most adverse attribution to the 2Q10 performance as the property was the largest revenue contributor while parts of its operating costs and expenses were fixed. As for operational performance, occupancy rates remained high at an average of 95% for retail properties and 81% for offices. Y-o-Y rental increases were achieved at almost all of the company's properties, though at low pace. On a q-o-q basis, few properties experienced a marginal drop in effective rental rate on the backdrop of political unrests. Development plans for under construction projects, namely Hilton Pattaya Beach Hotel, CentralPlaza Chiangrai, CentralPlaza Pitsanulok, and CentralPlaza Rama IX, remained intact. Likewise, the company's business expansion plan continued moving forward. A land plot in Surat Thani Province (South of Thailand) was acquired in 2Q10 for near-term development. Although the company has invested a large capital expenditure, financial position remained solid. Net interest-bearing debt to equity ratio was 0.8 times. This was due to a prudent financing policy, where funding mainly came from operating cash flow and cash proceeds from properties leased to CPNRF. CentralWorld During the 2Q10, there was a political demonstration nearby CentralWorld Project. The demonstration ended with fire incidents at CentralWorld Shopping Complex on May 19, 2010, causing damages to most of the Zen Department Store, a long-term leasee, and parts of the CentralWorld Shopping Complex. As a result of the political demonstration, CPN has closed down the complex since April 2010 for the safety of shoppers and tenants, and consequently, CPN has not charged rent to tenants since then. CentralWorld Project is protected by Industrial All Risk, business interruption and terrorism insurances. The management believes that the damages are fully covered by the insurance policies while the compensation for lost revenues after the fire incidents until the operation resumes as normal is expected to be compensated in full under terms and conditions of the business interruption insurance. At present, the insurers are investigating and assessing the actual damage, which is expected to be concluded by 4Q10. Until then, CPN has not yet recorded any impairment losses of assets and expected compensation from claims in its 2Q10 financial statements. (Please refer to notes to the financial statements for the quarter ended June 30, 2010, no.18). Nevertheless, during the closure of the complex and with the absence of its revenues, CPN incurred parts of operating costs and expenses related to this property, and accounted them in the company's 2Q10 financial statements. Though CPN has not yet received any compensation from claims, renovation and reconstruction works at the complex have proactively begun. Isetan Department Store, which was unharmed by the fire, was back in business, and by December 2010, most of CentralWorld Shopping Complex will be re-opened. As for the Zen Department Store, which requires approximately 14 months for reconstruction, its operation will resume in 3Q11. As a result of the fire incidents, CPN has postponed the plan to close down CentralPlaza Lardprao Shopping Complex as well as its enhancement project to 1Q11 to ensure a steady cash flow. Operational Performance Summary As at June 30, 2010, CPN managed 15 shopping centers (9 projects in Bangkok and 6 projects in provinces), 6 office towers, 2 residential properties, and 1 hotel. These include the properties which have been transferred to CPNRF, of which CPN acts as the property manager. For CPN's retail properties, occupancy rate in 2Q10 averaged 95%, excluding CentralWorld's. For CentralPlaza Lardprao, occupancy rate fell to 87% as some tenants moving out prior to the postponement of its major renovation project. Effective rental rate (for retail tenants) stood at 1,201 Bt/sqm/mth, down 2.6% y-o-y, reflecting lower effective rental rates of new provincial projects. Excluding CentralWorld and the five newly opened projects, the other projects achieved an average 1.0% y-o-y growth in effective rent. Despite the postponement of renovation plan at CentralPlaza Lardprao Shopping Complex, enhancement project of its office tower has pushed forward, resulting in temporary decrease in occupancy rate. For the latest office project at Chaengwattana, take-up rate jumped from 29% in the preceding quarter to 53% in 2Q10 mainly from a new anchor tenant. It is a nature of office property that normally takes approximately 2 years for a building to fill-up 80% of its space; hence, low take-up rate of the Chaengwattana's office at its initial stage is considered normal. The remaining space is expected to be leased out by 2011. Table 1: Operation Statistics Retail Shopping Centers Net Leaseable Occupancy Rate (%) Area (Sqm.) 2Q09 1Q10 2Q10 Ladprao 55,583 97% 94% 87% Ramindra 17,160 100% 99% 100% Pinklao 37,463 98% 100% 100% Pattaya Center 15,226 99% 97% 97% Ratchada-Rama3 18,192 99% 99% 100% Chiangmai 75,873 99% 99% 99% Bangna 57,695 98% 99% 99% Rama2 5,937 100% 100% 100% Rattanathibet 76,938 97% 98% 98% CentralWorld n/a 97% 95% n/a Chaengwattana 65,568 93% 90% 91% Pattaya Beach Festival 56,832 89% 90% 90% Udon Thani 49,773 100% 98% 98% Chonburi 40,119 83% 90% 90% Khonkaen 49,537 n/a 91% 90% Total 621,896 96% 95% 95% Note: Excludes assets leased to CPNRF Offices Net Leaseable Occupancy Rate (%) Area (Sqm.) 2Q09 1Q10 2Q10 Ladprao 17,719 96% 71% 38% Bangna 10,007 92% 95% 97% CentralWorld 82,796 94% 95% 95% Chaengwattana 19,699 20% 29% 53% Total 130,221 85% 82% 81% Note: Excludes assets leased to CPNRF Financial Performance Total Revenues Rental and Service Income 2Q10 rental and service income registered 2,164.9 MB, declined by 14.6% y-o-y and 20.8% q-o-q, primarily due to the absence of rental and service income from CentralWorld and the transfer of partial assets of CentralPlaza Pinklao and the two offices at CentralPlaza Pinklao Project to CPNRF. For comparative purpose, excluding performance of CentralWorld and CentralPlaza Pinklao Project in 2Q10 and 2Q09, rental and service income surged 12.1% y-o-y, mainly supported by the openings of new projects. On a q-o-q basis, disregard the performance of CentralWorld, rental and service income declined by 4.5%. The weaker performance was mainly due to the compound effects of the followings: a) A one-month rental waive at The Offices at CentralWorld, compensating the difficulty of access during political gatherings at nearby area. b) A closure of partial space at the CentralPlaza Lardprao's office tower for renovation in addition to a lower occupancy rate at CentralPlaza Lardprao upon approaching its major renovation. Food and Beverage Sales For in-mall food center business, Y-o-Y food and beverage sales declined by 21.4% as there were more numbers of mid-end restaurants and food parlors in the shopping centers. This, in return, yielded higher rental and service income to the company. Compared to the preceding quarter, almost all of the food centers performed reasonably well, gaining a fair growth of 5.1%. Revenues from Hotel Operations Hotel operations are considered as CPN's non-core businesses, of which performance was driven by a single asset "Centara Hotel & Convention Center, Udonthani". Despite a 28.1% y-o-y increase in average room rate to 1,132 Bt/night, revenues from the business shrank by 5.5% y-o-y to 34.3 MB, driven by a lower occupancy rate of 64% on the backdrop of political tension and depressed tourism. Other Income Other income fell by 36.0% y-o-y and 62.2% q-o-q as there were a one-time gain of 66.0 MB from acquisition of additional investment units in the Thai Business Fund 4 in 2Q09 performance and non-recurring income of 162.7 MB incorporated in the 1Q10 financial results. Excluding the non-recurring items, 2Q10 other income would have dropped 9.6% y- o-y and 34.4% q-o-q, mainly from the closure of CentralWorld and fewer promotional events during the 2Q10 political tension. Total Cost Total cost of rental & service, food & beverage and hotel business included utilities, depreciation and amortization of rented properties, on-site personnel, repair & maintenance and property tax. The effect on the cost side from the closure of CentralWorld was minuscule as parts of operating costs related to this property were fixed or a must. However CPN is entitled to claim such costs from the insurance under business interruption policy. 2Q10 cost of rental & service registered 1,556.1 MB, up 3.5% y-o-y on new projects and down 3.8% q-o-q. Total costs registered 1,689.2 MB, up 1.4% y-o-y and down 3.3% q-o-q. Total Operating and Administration Expenses Total operating and administration expenses constituted expenses on personnel, marketing and promotion costs, office supplies, professional fees, depreciation and amortization of office equipments. In 2Q10, CPN incurred 436.2 MB of total operating and administration expenses, decreased by 3.8% y-o-y, primarily due to a) the closure of CentralWorld, b) a portion of marketing expenses of CentralPlaza Pinklao being transferred to CPNRF, and c) the inclusion of advertising and promotion expenses for opening celebration of CentralPlaza Chonburi in the 2Q09 results. On a q-o-q basis, total operating and administration expenses dropped by 5.1%, mainly attributed to the closure of CentralWorld and the inclusion of extra bonus in the 1Q10 personnel expenses. Net Profit Without the non-recurring items in 2Q09 and 1Q10, net profit in 2Q10 would have declined by 69.6% y-o-y and 75.5% q-o-q mainly from the closure of CentralWorld as mentioned previously. Table 2: Consolidated Results Summary Consolidated Result (Bt mil) 2Q09 1Q10 2Q10 YoY%Chg QoQ%Chg Total Revenues 2,978.1 3,290.5 2,486.0 (16.5%) (24.4%) Revenues from rental and service 2,534.8 2,734.9 2,164.9 (14.6%) (20.8%) Retail 2,301.5 2,538.8 2,023.8 (12.1%) (20.3%) Office 226.3 189.1 133.4 (41.1%) (29.5%) Other rental income 7.0 7.0 7.7 10.1% 10.1% Hotel operations 36.3 37.0 34.3 (5.5%) (7.4%) Food & beverage sales 180.7 135.1 142.0 (21.4%) 5.1% Other income 226.3 383.5 144.8 (36.0%) (62.2%) Total Costs 1,666.2 1,746.3 1,689.2 1.4% (3.3%) Costs of rental and service 1,503.1 1,617.1 1,556.1 3.5% (3.8%) Retail 1,364.2 1,484.2 1,422.7 4.3% (4.1%) Office 131.0 126.3 126.4 (3.5%) 0.1% Other rental income 7.9 6.6 7.0 (11.6%) 5.7% Hotel operations 15.3 13.7 14.1 (7.6%) 3.1% Food & beverage sales 147.8 115.5 118.9 (19.5%) 2.9% Operating profit 864.3 1,268.0 371.8 (57.0%) (70.7%) Net profit 587.0 950.8 164.4 (72.0%) (82.7%) EPS (Bt) 0.27 0.44 0.08 (72.0%) (82.7%) Note: Includes non-recurring items Capital Structure During 2Q10, CPN repaid totaling 227.5 MB of long-term borrowings and issued new debts of totaling 1,850 MB, including 500-MB unsecured bonds (2-yeared maturity at a coupon of 3- month fixed deposit rate + 1.15% per annum) and 1,350 MB of project financing (7-yeared term at MLR-2.0% per annum). As of June 30, 2010, interest-bearing debts comprised of 62% fixed and 38% floating interest rate with a weighted average interest rate of 4.4% per annum. Although the company has invested a large capital expenditure, financial position remained solid. Net interest-bearing debt to equity ratio was 0.8 times, lower than the company's policy of one time. As a result of the closure of CentralWorld, CPN has postponed the enhancement project of CentraPlaza Lardprao to 1Q11. Nonetheless, other development plans remained intact, funding through operating cash flow, cash proceeds from property lease to CPNRF, and long-term bank loans. Table 3: Financial Position Balance Sheet (Bt mil) 2Q09 1Q10 2Q10 %YoYChg %QoQChg Total Assets 49,218.1 51,540.2 51,946.9 5.5% 0.8% Current assets 4,216.0 4,609.2 4,442.1 5.4% (3.6%) Property & equipment (PP&E) 36,703.9 38,405.9 39,111.8 6.6% 1.8% Leasehold right 4,820.3 4,248.8 4,117.7 (14.6%) (3.1%) Total Liabilities 34,187.6 31,577.9 32,983.6 (3.5%) 4.5% Interest-bearing debts 19,311.1 16,642.0 18,264.5 (5.4%) 9.7% Shareholder's Equity 15,030.6 19,962.3 18,963.3 26.2% (5.0%) Retained earnings 10,778.4 15,490.7 14,391.5 33.5% (7.1%) Table 4: Key Financial Ratios Key Financial Ratios 2Q09 1Q10 2Q10 Liquidity ratio Current ratio (times) 0.6 0.7 0.6 Quick ratio (times) 0.4 0.5 0.5 Days account receivable (days) 16.6 12.4 16.0 Profitability ratio Gross profit margin (%) 42.8% 44.2% 32.1% Net profit margin (%) 18.0% 20.6% 6.3% Return on equity (%) 14.4% 14.0% 3.4% Efficiency ratio Return on assets (%) 4.5% 5.2% 1.3% Financial policy ratio Net debt to equity (times) 1.1 0.7 0.8 Net debt to EBITDA (times) 3.2 2.5 3.0 Interest coverage /1 (times) 6.5 6.2 6.7 Note:/1 Cash generated from operation excludes cash payment of endorsed promissory notes