MD&A Q2/06

Overall Performance

Comparison between 2Q06 and 2Q05 performance should be done under the consideration that partial performance of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 has been transferred to CPN Retail Growth Property Fund (CPNRF) since August 2005 due to the financial lease of most of assets of those properties to CPNRF. This was the main contribution to the changes in the company's performance when comparing this year performance to that of the same period of the previous year. However, for comparative purpose, additional analysis is provided to show what the company's performance would have been if performance of such properties and other items associated with the financial lease had been excluded in the calculation in 2Q06 and 2Q05.
(Slight performance change on transferring of two properties to CPNRF in August 2005.)

Net Profit:
* CPN reported net profit growth of 15.2% y-o-y, mainly due to increased performance of the company's existing properties, property management fee from CPNRF, equity income contribution from the 33% shareholding of CPNRF and increased interest income.
* 2Q06 net profit dropped 5.6% q-o-q to 431.2 MB mainly due to closure of some retail space at CentralWorld for renovation and increases in cost of rental and service, interest expense and corporate income tax.
(2Q06 net profit of 431 MB, up 15.2% y-o-y)

Total Revenue:
* Total revenue declined by 3.8% y-o-y, mainly due to transferred performance of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 to CPNRF.
* Total revenue from rental & service and food & beverage sales increased slightly by 0.1% q-o-q to 1,596.1 MB

EBITDA:
* Y-o-Y EBITDA dropped 7.1% mainly due to transferred performance of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 to CPNRF.
* CPN saw a slight drop in EBITDA by 4.7% q-o-q to 832.3 MB mainly attributed to closure of retail space at CentralWorld (Since March 31,2006) for renovation and a slight increase in cost of rental and service.

Table 1: Consolidated Result 2Q06 Summary

Financial Performance Summary

Total Revenue

CPN reported 2Q06 consolidated income from rental & service and food & beverage of 1,596.1 MB, representing a drop of 3.8% y-o-y. Rental & service income amounted 1,486.3 MB, down 4.3% y-o-y, primarily due to such income of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 was partially transferred out to CPNRF. Food & beverage sales grew 2.9% y-o-y to 109.8 MB.

For comparative purpose, excluding performance of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 in 2Q06 and 2Q05, 2Q06 income from rental & service and food & beverage of the company's other properties increased 8.4% y-o-y, attributed to increased take up rate at The Offices at CentralWorld from 45% in 2Q05 to 84% in 2Q06, greater leasable area at Central Town Rattanathibet after relaunching in September 2005, and higher rental rates achieved at almost all of the other properties.

Compared to the previous quarter, 2Q06 income from rental & service and food & beverage slightly increased by 0.1%. Although occupancy dropped at CentralWorld due to closure of certain areas (Zone A) for renovation, CPN's revenue from other properties more than compensated for this reduction. Higher rental rates were achieved in renewals and new leases. Strong take up rate at CPN's office properties were achieved with average occupancy increasing from 83% in 1Q06 to 86% in 2Q06. Food & beverage sales grew by 8.0%.

Other income increased 68.1% y-o-y to 107.3 MB, mainly attributed to property management fee income from CPNRF and unrealized income of operating lease of land of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 to CPNRF.

(Decreased rental & service and F & B income by 3.8% y-o-y. Excluding properties transferred to CPNRF in 2Q05 and 2Q06, income performance would have increased 8.4% y-o-y.)

(Rental & service and F & B income slightly increased q-o-q due to closure of some leasable area of CentralWorld for renovation.)

Total Cost

Total cost includes cost of space rental & service, food & beverage, on-site personnel, depreciation and amortization on renting properties, property tax, and repair & maintenance. In 2Q06 CPN incurred 892.9 MB of total cost, flat y-o-y as a portion of cost of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 was transferred out to CPNRF. However, total cost of the company's other properties in 2Q06 increased 5.9% y-o-y, as a result of incremental costs from new leasable area at Central Town Rattanathibet and higher costs of The Offices at CentralWorld.

Total cost grew 3.8% q-o-q, attributed to higher cost of repair and maintenance, depreciation cost and increased electricity (FT Baht per unite) rate.

Total Operating and Administration Expenses

Total operating and administration expenses include expenses on personnel, advertising and promotion, office supplies, profession fees, depreciation and amortization on office equipments. In 2Q06, operating and administration expenses declined by 16.0% y-o-y to 203.5 MB. The result was due to partial expense of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 being transferred to CPNRF. However, such expenses of the company's other properties decreased by 15.1% y-o-y, mainly attributed to lower advertising and promotion spending as significant advertising and promotion budget was used in 2Q05 in the launch of The Offices at CentralWorld.

Compared to the previous quarter, operating and administration expenses dropped by 3.6% q-o-q, reflecting a drop in advertising and promotion expenses.

Net Profit

In 2Q06, net profit registered 431.2 MB, up by 15.2% y-o-y, due to increased take up rate of the Offices at CentralWorld, additional leasable area of Central Town Rattanathibet, escalation in rental rates at almost all properties, realized income of operating lease of land of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 to CPNRF, property management fee from CPNRF and equity contribution from 33% shareholding of CPNRF.

Compared to the previous quarter, 2Q06 net profit dropped 5.6% q-o-q due to closure of some retail space of CentralWorld for renovation, slight increase in cost of rental and service, additional interest expense from 1,500MB bond issued in June 2006 and higher corporate income tax.

Financial Position as at June 30, 2006

Assets

As of June 30, 2006, the consolidated assets amounted to 32,790.0 MB, a decrease of 150.8 MB, or 0.5% q-o-q. Total current assets declined by 799.9 MB, or 12.6% q-o-q, mainly due to payment of construction and renovation of CentralWorld. Non-current assets increased by 649.1 MB or 2.4% q-o-q mainly attributed to the increase of net property and equipment amounted from the additional construction in progress of CentralWorld.

Liabilities

CPN recorded consolidated liabilities of 20,991.3 MB, up 293.7 MB, or 1.4% q-o-q. Long-term interest bearing debt stood at 11,648.5 MB, accounting for 55.5% of total liabilities. Current liabilities declined by 2.4% q-o-q to 3,787.7 MB whilst non-current liabilities increased by 2.3% q-o-q to 17,203.6 MB.

Shareholders' Equity

Shareholders' equity registered 11,798.7 MB, a decrease of 444.5 MB, or 3.6% q-o-q, mainly attributed to the dividend payment of 871.5 MB, representing dividend payout of Bt 0.40 per share.

(Dividend payout Bt 0.40 per share.)

Profitability

Gross Profit Margin

2Q06 gross profit margin was 44.1%, down from 46.1% of 2Q05. Excluding performance of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 in 2Q06 and 2Q05 for comparative purpose, gross profit margin would have been 47.6%, above 46.4% of 2Q05. The main reasons of being higher are the increased take up rate of The Offices at CentralWorld, the new leasable area of Central Town Rattanathibet after the relaunch, and higher rental rates.

Gross margin declined slightly from 46.0% in 1Q06 to 44.1% in 2Q06. The reasons stemmed from the higher expense in utility and repair & maintenance expenses at nearly all properties while total sales increased marginally mainly due to the significant drop in sales at CentralWorld which closed down selected areas (Zone A) in March 31, 2006 for renovation.

Net Profit Margin

2Q06 Net profit margin improved to 24.6%, up from 21.6% in 2Q05, driven by increased interest income, property management fee income from CPNRF and equity income from the 33% shareholding in CPNRF.

Net profit margin decreased slightly from 26.1% in 1Q06 to 24.6% in 2Q06 mainly due to the higher utility costs, higher repair & maintenance expense, higher interest expense and higher income corporate tax.

Return On Equity

Return on equity in 2Q06 was 15.1%, down from 17.1% of that in 2Q05, as a result of higher shareholders' equity based in 2Q06 due to gain on lease transaction with CPNRF.

Return on equity slightly declined from 16.0% in 1Q06 to 15.1% in 2Q06 due to the decline in net profit. Please refer to "Net Profit" section for more explanation.

Capital Structure

Financial position remained solid, given that net interest bearing debt to equity at 2Q06 stood at 0.6 times. However, net debt to equity increased slightly from 0.4 times in 1Q06 mainly due to the issuance of unsecured bond totaling 1,500 MB in June 2006 and the decline of cash for payment of debt and capital expenditure, mainly of CentralWorld.

Interest coverage ratio stood at 6.5 times in 2Q06, an increase from 5.6 times in 1Q06. This is attributed to increased cash generated from operation, mainly given by increased security deposits received from tenants of CentralWorld.

Obligation recovery service dropped from 0.6 times in 1Q06 to 0.2 times in 2Q06 attributed to the payment of a 570.8 MB endorsed promissory note, significant cash payment for construction and renovation of CentralWorld and a dividend payment of 871.5 MB in 2Q06.

In 2Q06, CPN repaid long-term borrowings 585.3 MB and issued unsecured bond of 1,500 MB in June 2006 to fund capital expenditure for new projects. As of June 30, 2006, interest bearing debt comprised of 67% fixed and 33% floating interest rate with a weighted average interest of 5.3% per annum.

(Net debt to equity 0.6 times.)

Table 2: Key Financial Ratios

Note:
(1) Cash generated from operation excludes cash payment of endorsed promissory notes.

Operations

As of June 30, 2006 total leasable area was 767,610 sqm, which includes 616,656 sqm of retail space, 144,581 sqm of office space and another 6,373 sqm of residential space. The leasable area mentioned above also includes leasable area of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 of which performance has been transferred to CPNRF but CPN acts as the property manager.

Average Occupancy rate for CPN's retail malls declined slightly from 91% in 1Q06 to 88% in 2Q06. This was attributed to the renovation and rezoning works at several of our properties. CentralWorld occupancy declined from 67% in Q106 to 56% in Q206 due to closure of some retail space for major renovation works which will be completed and reopened in December 2006. Rezoning activities are being performed at Pinklao and Ratchada-Rama3 and should be completed by 3Q06. Ramindra is undergoing a major renovation where the mall will be repositioned under the town center format which will be completed by 1Q07. Average occupancy rate for CPN's offices increased to 86% in 2Q06 from 83% at 1Q06. The main contribution was from the higher take up at The Offices at CentralWorld and Pinklao's Tower B office.

Table 3: Operational Statistics

Note:
(1) Pinklao B completed its conversion of apartment building into office building in the beginning of 2006.

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