Central Pattana Public Company Limited Management's Discussion and Analysis Consolidated Financial Results : Quarter 3/2005 OVERALL PERFORMANCE Central Pattana Plc., reported consolidated net profit in Q3/2005 of 2,173.6 MB, an increase of 1,793.3 MB, or 471.6% from Q3/2004. This was mainly came from the gain of 2,766.7 MB (or 1,937 MB net of tax) from financial lease (1) of its building and utility system of Central Plaza Rama 2 and Rama 3 to CPN Retail Growth Property Fund "CPNRF". However, the Company has made a provision for losses on impairment of its land bank of 406.6 MB (or 285 MB net of tax). Excluding the gain from financing lease with CPNRF of 2,766.7 MB, the impairment provision of 406.6 MB, the impact to income tax (2) of 708.0 MB and the share of loss in subsidiaries attributed to minority interests of 113.9 MB from such provision, CPN's net profit from normal operation totaled 407.6 MB, an increase of by 27.4 MB or 7.2% over Q3/2004. This increase came mainly from the increase of rental income from The Offices at Centralworld and Central Town Rattanathibet, which completed its expansion in August. Moreover, CPN also received property management fee and profit sharing of 33% from CPNRF in this quarter which was 11.0 MB and 35.9 MB respectively. On 15th and 16th August 2005 CPN completed a lease transaction of Central Plaza Rama2 and Rama3 to CPNRF creating the largest retail property fund in Thailand with net asset value of 11,023.9 MB as at September 30, 2005. The proceed from the establishment of CPNRF has strengthened CPN'S financial position by allowing CPN to repay a portion of its loan and retain a high balance of cash of 5,000 MB to finance its future investment. As a result, net interest bearing debt to equity declined substantially from 0.9x in Q2/2005 to 0.4x in Q3/2005 still lower than the company's policy of 1.0x. Central Town Rattanathibet was officially relaunched with the grand opening ceremony on September 15, 2005. The building's interior & exterior have been completely renovated & modernized, and salable area increased approximately 25,000 sq.m. for the new cinemas, restaurants and other retail shops. Robinson Department store also opened on the first and second floor. So far, this project has received very good responses from customers. Therefore, CPN believe it can increase its revenue and profit in the long run. Revenues Rental & service and food & beverage income for Q3/2005 were 1,674.1 MB, a Y-o-Y increase of 202.2 MB or 13.7%. Although revenue of Central Plaza Rama 2 and Rama 3 were partially transferred to CPNRF. The increase in rental revenue from The Offices at Centralworld and the relaunch of Central Town Rattanathibet. In Q3/2005, other income was 2,878.4 MB, an increase of 2,798.4 MB, or 3,497.9% over Q3/2004. The increase mainly came from the gain from the financial lease of building and system with CPNRF which amounted to 2,766.7 MB. In addition, CPN also received property management fee from CPNRF which amounted to 11.0 MB. Cost and Administrative expenses In Q3/2005, Cost of rental & service and food & beverage were 875.1 MB, Y-o-Y increase of 95.3 MB, or 12.2%. The main attributes were higher operating costs and depreciation of The Offices at Centralworld and Central Park Rama2, land lease fee of Central World project, and higher utility cost due to increases in electricity expense. Selling and administration expenses in Q3/2005 was 633.1 MB, a Y-o-Y increase of 463.1 MB, or 272.5%. The principle increase came from the provision for losses on impairment of its land bank of 406.6 MB. and higher advertising and promotion expenses due to more activities in all shopping centers such as the public relation campaign of Central World and the relaunch of Central Town Rattanathibet. Financial Position as at September 30, 2005 * Assets As at September 30, 2005, the consolidated assets were 31,572.2 MB, an increase of 3,565.6 MB, or 12.7% over June 30, 2005. A large component came from the increase in cash from the lease and/or sub-lease of some properties of Central Plaza Rama2 and Rama3 of CPNRF and the gain associated with such lease. Consolidated assets also increased due to the increase in property and equipment from the construction and renovation of Central World Plaza and Central Town Center Rattanathibet and the purchase of land for new projects. Moreover, CPN consolidated 40% of Rama3's assets from the purchase of shares of Central Pattana Rama3 Co., Ltd. from Rodamco Thailand B.V. Currently, CPN holds 100% shares of the company as mentioned. * Liabilities As at September 30, 2005, the consolidated liabilities were 20,238.4 MB, an increase of 1,889.1 MB or 8.0% over June 30, 2005. The increase was attributed to the increase in deferred income tax from the gain of the transactions with CPNRF, the impairment provision which amounted to 708.0 MB, the increase in unearned rental income from operating lease of land with CPNRF, and consolidation of 40% liabilities of Central Pattana Rama3 Co., Ltd. Furthermore, the Company also repaid loan of Central Pattana Rama 2 and Rama 3 amounted to 1,035 MB. * Shareholders' Equity Shareholders' equity as at September 30, 2005 was 11,333.7 MB, 2,070.9 MB or 22.4% higher than June 30, 2005. The increase came from net income from Q3/2005 of 2,173.6 MB. Financial Ratio Analysis * Profitability In Q3/2005 gross profit margin was 47.7%, a slight increase from the same period of last year due to increase revenue from The Offices at Centralworld which has started to cover its costs, especially depreciation expense. However, this ratio will further improve in the next quarter due to higher occupancy rate of The Offices at Centralworld and the opening of expansion of Central World Plaza in the mid of 2006. Net profit margin and Return on equity (ROE) in Q3/2005 were 47.7% and 80.2%, which increased Y-o-Y from 24.0% and 18.7% respectively. This was due to the gain from lease of building and utility system to CPNRF as mentioned above. * Financial Policy Interest coverage ratio was 16.7x, which increased Y-o-Y from 7.5x. This was due to the increase of cash flow from operation (from the increase in revenue and cash inflow from lease/sublease of land of Central Plaza Rama2 and Rama3) and the decrease of long term borrowing from the repayment of loan of Rama 2 and Rama 3 projects of 1,035 MB. Net interest bearing debt to equity ratio decreased from 0.9x in Q3/2004 to 0.4x in Q3/2005. As at September 30, 2005, interest bearing debt comprised of 89% fixed and 11% floating interest rate. The weighted average interest rate was 4.8%. Key Ratio Q3/2005 Q3/2004 LIQUIDITY RATIO Current Assets/Current Liabilities (Times) 1.4 0.9 Accounts Receivable Turnover (Days) 3 7 PROFITABILITY RATIO Gross Profit Margin (%) 47.7% 47.0% Net Profit Margin (%) 47.7% 24.0% Return on Equity (%) 80.2% 18.7% EFFICIENCY RATIO Return on Assets (%) 27.5% 5.7% FINANCIAL POLICY RATIO Net Interest Bearing Debt to Equity (Times) 0.4 0.9 Interest Coverage (Times) 16.7* 7.5 Note : *Cash flow included cash from operating lease and/or sub-lease of land for Central Plaza Rama 2 and Rama 3 project. (1) Two types of leasing contract are as follow; 1. Financial Lease : realize a one time gain on the agreement date gain from the lease of building and utility system to CPNRF . 2. Operating Lease : amortize revenue from the lease/sublease of land to CPNRF throughout the period of lease agreement. (2) Income tax on the gain from the financial lease with CPNRF and the impairment provision : CPN recorded income tax on such 2 transactions according to deferred income tax principle that meaned income tax of 30% on these transactions were recorded in this quarter. Tax on the gain from financial lease was 830.1 MB (30% of 2,766.7 MB) and tax on the impairment provision was (122.0) MB ( 30% of 406.6 million baht). So; net income tax from these transactions was 708.0 MB.