Central Pattana Public Company Limited Management's Discussion and Analysis Consolidated Financial Results: 1Q09 Overall Performance Central Pattana Public Company Limited ("CPN") reported its three-month consolidated total revenues (rental & service income and food & beverage sales) of 2,598.1 MB, shown a growth of 24.3% y-o-y, mainly from the openings of CentralPlaza Chaengwattana in November 2008 and CentralFestival Pattaya Beach in January 2009. Operating profit registered 871.6 MB, gained 6.3% y-o-y while net profit slightly declined by 2.3% y-o-y to 603.2 MB as there was a capitalization of interest payment in 1Q08 in addition to the lower margin at the initial stage of the two new projects. On a q-o-q basis, 1Q09 consolidated total revenue increased by 17.3% q-o-q, mainly from a full quarter revenue contribution from CentralPlaza Chaengwattana and an additional income from CentralFestival Pattaya Beach. Similarly, consolidated operating profit and net profit gained by 38.4% q-o-q and 26.6% q-o-q, respectively, primarily from increased revenues and lower personnel and marketing & promotion expenses. As for operational front, total equity owned leasable area increased by 19.4% y-o-y and 9.8% q-o-q to 854,812 sqm after the openings of CentralPlaza Chaengwattana (66,939 sqm), CentralFestival Pattaya Beach (54,793 sqm) and the office building (19,530 sqm) at CentralPlaza Chaengwattana Project. Occupancy rate of retail space in 1Q09 averaged 96% while that of the office space stood at 84%, lower than 94% of the preceding quarter, as a result of lower take-up at the new office (opened in March 2009) at CentralPlaza Chaengwattana Project. Effective rental rate for retail space averaged 1,272 Bt/sqm/mth, up 1.3% y-o-y but down 1.0% q-o-q. 2009 is another challenging year for CPN and other business operators. Though unfavorable economy factors and prolong political unrest have adversely affected CPN, on the bright side they also provided us opportunities to acquire land and/or other assets at reasonable prices and low construction cost. After all a key priority of the company is to ensure that cash flow remains steady and is well reserved for under-developing project and any unforeseen liquidity needs. Table 1: Consolidated Results Summary Consolidated Result 1Q08 4Q08 1Q09 YoY % QoQ % (Bt mil) Chg Chg Rental & service income 2,090.7 2,215.7 2,598.1 24.3% 17.3% and F & B sales Gross profit 936.6 883.3 1,080.6 15.4% 22.3% Operating profit 819.9 629.8 871.6 6.3% 38.4% Net profit 617.4 476.5 603.2 (2.3%) 26.6% EPS (Bt) 0.28 0.22 0.28 (2.3%) 26.6% New Developments Global recession has negatively impacted CPN on a certain level. The plan to raise fund through CPN Retail Growth Property Fund ("CPNRF") has to be delayed; hence, expansions have been funded through internal cash flow and debts. In regard to these unfavorable sentiments which are viewed as short-to-medium-term adversary, CPN's long-term strategies remain intact. The near-term target of having 18 projects by 2010 will be prudently executed. Recently, CPN has accomplished the commencements of two new green-field projects - CentralPlaza Chaengwattana and CentralFestival Pattaya Beach - and an acquisition of Charoensri Complex in Udonthani Province (Northeast of Thailand). CentralFestival Pattaya Beach commenced its operation at the beginning of 1Q09. The mixed-use development comprises of a shopping mall with an occupancy rate of 88% and a 340-room hotel which is currently under construction. Shopping mall performance was recognized within this quarter while that of the hotel business will be realized once commercialize in 3Q 2010. In late 1Q09, CPN launched an office building at its CentralPlaza Chaengwattana Project. The office offers approximately 19,530 sqm of leasable area, of which 8% were occupied and the other 12% were leased out. Due to its nature of being an office property, which normally takes approximately 2 years for a building to reach its 80% occupancy rate; hence, low take- up rate of the Chaengwattana's office at its initial stage is considered normal. In April 2009, CPN acquired Charoensri Complex, a mixed-use development of shopping plaza of approximately 49,000-sqm leasable area (occupancy rate of 99%) and a 255-room hotel (average occupancy rate of 80%). Operating results of the property will be recognized starting in the second quarter of this year. As for the other three under-developing projects - CentralPlaza Chonburi, CentralPlaza Khon Kaen, and CentralPlaza Rama IX - construction is progressing as per schedule. The funding came from internal cash flow 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. (*Please refer to session: "Capital Structure" for more details) Operational Performance Summary As at March 31, 2009, CPN managed 13 projects with a leaseable area of 980,498 sqm (up 15.6% y-o-y and 7.5% q-o-q) in total which includes 810,313 sqm of retail space, 163,812 sqm of office space, and another 6,373 sqm of residential space. The above mentioned retail space consists of 684,627 sqm of equity owned retail space. The remaining 125,686 sqm of CentralPlaza Rama 2 and CentralPlaza Ratchada-Rama 3 are owned by CPNRF, which CPN acts as a Property Manager. In 1Q09, occupancy rate for CPN's retail malls averaged 96%, compared to 95% and 97% in 1Q08 and 4Q08, respectively. Occupancy rate of CentralWorld, the largest property of CPN, has increased from 90% in 1Q08 to 97% in this quarter after the opening of an anchor "CenterPoint" late last year. Meanwhile, occupancy rates for the newly opened CentralPlaza Chaengwattana and CentralFestival Pattaya Beach in 1Q09 stood at 92% and 88%, respectively. Effective rental rate of retail space averaged 1,272 Bt/sqm/mth, up 1.3% y-o-y and down 1.0% q-o-q. For comparative purpose, excluding those of the newly opened centers, effective rental rate averaged 1,287 Bt/sqm/mth, up 2.5% y-o-y and down 0.3% q-o-q. These were mainly a result of lower rental rate of new leases at CentralPlaza Lardprao upon approaching its major renovation. This rental rate is inclusive of special rental discounts given to groups of tenants at CentralWorld and the two new projects during their initial stages. Occupancy rate for CPN's offices averaged 84%, declined from 96% in 1Q08 and 94% in 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 8% as at 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.) 1Q08 4Q08 1Q09 Lardprao 55,531 99% 97% 97% Ramindra 17,159 98% 100% 99% Pinklao 55,824 91% 98% 97% Pattaya Center 15,225 100% 100% 100% Ratchada-Rama3 18,192 100% 100% 99% Chiangmai 76,108 99% 99% 99% Bangna 57,435 99% 98% 98% Rama2 5,937 100% 100% 100% Rattanathibet 76,892 99% 98% 98% CentralWorld 184,592 90% 97% 97% Chaengwattana 66,939 n/a 91% 92% Pattaya Beach 54,793 n/a n/a 88% Festival Total 684,627 95% 97% 96% Offices Net Leaseable Occupancy Rate (%) Area (Sqm.) 1Q08 4Q08 1Q09 Lardprao 17,719 95% 97% 97% Pinklao A 22,426 94% 85% 92% Pinklao B 11,334 90% 92% 92% Bangna 10,007 100% 97% 92% CentralWorld 82,796 97% 96% 95% Chaengwattana 19,530 n/a n/a 8% Total 163,812 96% 94% 84% Financial Performance Summary Total Revenue In 1Q09 consolidated total revenue from rental & service and food & beverage showed a strong growth of 24.3% y-o-y to 2,598.1 MB. Rental & service income grew 23.0% y-o-y to 2,451.0 MB while food & beverage sales increased 51.3% y-o-o-y to 147.0 MB. The key drivers remained CentralWorld which posted a continuously strong performance in addition to the contributions of CentralPlaza Chaengwattana and CentralFestival Pattaya Beach. Compared to the previous quarter, total revenue increased by 17.3%. Rental & service income grew 17.2%, mainly due to the full quarter contribution of CentralPlaza Chaengwattana and the additional income from CentralFestival Pattaya Beach. Similarly, food & beverage sales increased 18.2% q-o-q primarily from the new food centers ("Food Park") at CentralPlaza Chaengwattana and CentralFestival Pattaya Beach. Total Cost Total cost of rental & service and food & beverage includes utilities, depreciation and amortization of rented properties, on-site personnel, repair & maintenance and property tax. In 1Q09, consolidated total cost of rental & service and food & beverage registered 1,517.5 MB, up 31.5% y-o-y and 13.9% q-o-q, mainly as a result of additional depreciation & amortization expenses of the new projects in addition to a higher sub-lease payment of CentralPlaza Lardprao after a renewal of its sub-lease agreement. Total Operating and Administration Expenses Total operating and administration expenses include expenses on personnel, marketing and promotion, office supplies, professional fees, depreciation and amortization expenses of office equipments. In 1Q09, total operating and administration expenses stood at 410.6 MB, up 43.9% y-o-y, reflected higher advertising and promotion spending for marketing activities during and after the openings of CentralPlaza Chaengwattana and CentralFestival Pattaya Beach. Personal expense was also higher following an increase in the number of employees to support business expansion. Compared to the previous quarter, total operating and administration expenses decreased 21.0%, as there were significant marketing & promotion spending for Christmas and New Year celebrations and extra personnel expenses, or annual bonus, in 4Q08. For 2009, CPN's marketing & promotion expenses were managed through top-line driven basis with a 5.0% budget of total revenues. For 1Q09, excluding the one-time spending for the grand opening of CentralFestival Pattaya Beach, the expenses were 3.5% of total revenue. Net Profit CPN reported 1Q09 consolidated net profit of 603.2 MB, declined by 2.3% y-o-y, reflected higher financial charges upon issuing more debts to support business expansion and lower margin at the initial stage of the newly opened CentralPlaza Chaengwattana and CentralFestival Pattaya Beach. Compared to the preceding quarter, 1Q09 net profit showed a gain of 26.6%, mainly due to higher revenues in addition to lower marketing & promotion spending and personnel expenses as previously mentioned. Table 3: Profitability Ratios Key Financial Ratios 1Q08 4Q08 1Q09 FY08 Profitability ratio Gross profit margin (%) 41.9% 36.4% 39.2% 39.8% Operating profit margin (%) 30.7% 18.7% 24.3% 26.2% Net profit margin (%) 26.4% 18.3% 20.9% 22.2% Return on equity (%) 18.5% 13.4% 16.3% 15.9% Financial Position as at March 31, 2009 Assets As at March 31, 2009, consolidated total assets registered 46,360.7 MB. Cash & cash equivalents and current investments amounted to 2,787.0 MB, decreased by 889.7 MB from that as at the end of FY2008, mainly due to construction payment of combined projects and debt repayment as per schedule. Property and equipment including leasehold rights increased by 3,439.4 MB, or 9.8% from that as at the end of FY2008, primarily attributed to a recognition of the up-front payment paid for the leasehold rights of CentraPlaza Lardprao after the renewal of sub-lease agreement and construction in progress of CentralFestival Pattaya Beach, CentraPlaza Chouburi, CentraPlaza Khon Kaen and CentralWorld. Liabilities Consolidated total liabilities stood at 30,586.7 MB, increased by 6.9% from that as at the end of FY2008. During 1Q09, CPN repaid 2,205.2 MB of loans and raised 1,920.0 MB of new debts. These contributed to a decrease in interest-bearing debt of 1.7% compared to that at the end of FY2008. Shareholders' Equity Consolidated total shareholders' equity registered 15,774.0 MB with total retained earnings of 10,910.4 MB, increased by 603.2 MB or 5.9% from that as at the end of FY2008, mainly from the 1Q09 net profit. Table 4: Financial Position Balance Sheet (Bt mil) 1Q08 4Q08 1Q09 FY08 % Change Total Assets 37,119.2 43,783.8 46,360.7 5.9% Total Liabilities 22,768.1 28,610.5 30,586.7 6.9% Interest-Bearing Debts 11,789.8 16,445.1 16,160.0 (1.7%) Shareholder's Equity 14,351.1 15,173.3 15,774.0 4.0% Retained earnings 9,457.7 10,307.2 10,910.4 5.9% Capital Structure As at March 31, 2009, total liabilities represented 66% of total assets. During 1Q09, CPN repaid loans totaling 2,205.2 MB and raised 1,920.0 MB of new debts (1,000-MB of 7-yeared bank loan at MLR-2.0% pa. and 920-MB short-term loan). These contributed to a decrease in interest-bearing debt of 1.7% to 16,160.0 MB. Net interest-bearing debt to equity stood at 0.8x, relatively unchanged from that as at the end 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 collateral. As of March 31, 2009 outstanding loans was 3,500 MB. As at March 31, 2009, interest-bearing debt comprising of 53% fixed and 47% floating interest rate with a weighted average cost of debt of 4.8% per annum, compared to 5.2% of FY2008. Table 5: Key Financial Ratios Key Financial Ratios 1Q08 4Q08 1Q09 FY08 Liquidity ratio Current ratio (times) 0.9 0.6 0.5 0.8 Quick ratio (times) 0.8 0.5 0.4 0.7 Cash generate from operation 0.5 0.6 0.6 0.6 ratio(times) Days account receivable (days) 16.2 19.0 17.8 17.8 Efficiency ratio Return on assets (%) 6.6% 4.6% 5.4% 5.4% Return on fixed assets (%) 8.5% 6.0% 6.6% 6.9% Assets turnover (times) 0.2 0.2 0.2 0.2 Financial policy ratio Obligation Recovery Service/1 (times) 0.5 0.4 0.4 0.4 Net debt to equity (times) 0.6 0.8 0.8 0.8 Interest coverage /1 (times) 5.7 6.7 6.7 7.2 Note: /1 Cash generated from operation excludes cash payment of endorsed promissory notes