MD&A Q3/06

Central Pattana Public Company Limited
Management's Discussion and Analysis
Consolidated Financial Results: 3Q06

Overall Performance

Significant performance change y-o-y due to transferal of two properties into CPNRF in August 2005.

Comparison between 3Q06 and 3Q05 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 the assets of those properties to CPNRF. This was the main contribution to the changes in the company's performance when comparing this year's 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 3Q06 and 3Q05. In addition, there were two non-recurring items accounted in 3Q05 financial result: 1) a gain for the financial lease of the partial areas of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 to CPNRF and a write-off (non-cash) as a result of impairment of assets under development.

3Q06 Net Profit of 431.7 MB, up 0.1% q-o-q on increased rental & service income and higher interest expense driven by new debentures.

Net Profit:

* CPN reported 3Q06 net profit of 431.7 MB, a declined of 80.1% y-o-y, due to the inclusion of a one-time gain of 2,766.7 MB (1,936.7 MB net of tax) from financial lease of the assets to CPNRF and a 406.6 MB write-off (284.6 MB net of tax) as a result of impairment of assets under development in 3Q05.

* Net profit q-o-q registered a slight growth of 0.1%. Although rental and service income growth exceeded cost of sales, CPN witnessed much higher interest expense from debentures that were issued in June 2006.

Total Revenue (Rental & Service Income and F & B Sales):

* Total revenue grew by 2.6% y-o-y to 1,717.6 MB even after the exclusion of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 in 3Q06. The growth came from continuous increases in rental rates and service income which were achieved at all of the properties and from the opening of CentralWorld's newly opened phase in August 2006.

* Total revenue increased by 7.6% q-o-q, primarily due to increased common area and air-conditioning service income from the newly adjusted rate at all properties in August and from the additional income from the expansion phase of CentralWorld, which opened in 3Q06.

EBITDA:

* Y-o-Y EBITDA dropped 75.7% as 3Q05 EBITDA included gain from the financial lease of the assets to CPNRF.

* 3Q06 EBITDA grew by 9.6% q-o-q to 912.5 MB, mainly attributed to increases in service income and other income.

Table 1: Consolidated Result 3Q06 Summary

Financial Performance Summary

Increased rental & service and F & B income by 2.6% y-o-y even after the transferal of Rama 2 and Rama 3 into CPNRF

Total Revenue

CPN reported 3Q06 consolidated income from rental & service and food & beverage of 1,717.6 MB, representing a growth of 2.6% y-o-y. Rental & service income reached 1,625.1 MB, up 3.6% y-o-y. Although majority of income from Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 were partially transferred out to CPNRF, rental and service income from other properties more than managed to compensate for this reduction. Food & beverage sales dropped 12.5% y-o-y to 92.6 MB primarily due to the closure of food court at Rama 3.

For comparative purpose, excluding performance of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 in 3Q06 and 3Q05, 3Q06 income from rental & service and food & beverage of the company's other properties increased 12.0% y-o-y, attributed to higher rental rates achieved at all of the properties, increased take up rate at The Offices at CentralWorld from 66% in 3Q05 to 90% in 3Q06, full contribution of additional leasable area at Central Town Rattanathibet after relaunching in September 2005, new office space at Pinklao Tower B after opening in March 2006 and increased common area and air-conditioning service income after rate adjustment in August 2006.

Rental & service and F & B income increased by 7.6% q-o-q.

Compared to the previous quarter, 3Q06 income from rental & service and food & beverage increased by 7.6%, mainly due to increased rental & service income, which was up 9.3% q-o-q. This increase was primarily attributed to increases in common area and air-conditioning service income upon applying new rates, effective in August 2006 at all CPN's properties and to incremental income from CentralWorld which partially opened in August 2006. In addition, higher rental rates were achieved in renewals and new leases at almost all properties and strong take up rate at CPN's office properties were achieved with average occupancy increasing from 86% in 2Q06 to 90% in 3Q06. Food & beverage sales however, experienced a drop of 15.7% q-o-q due to seasonal factor since 3Q06 had fewer holidays than the previous quarter and also due to the closure of food court at Central Plaza Ratchada-Rama 3 in June 2006.

Other income decreased 93.4% y-o-y to 190.6 MB, as 3Q05 included a one-time gain of 2,766.7 MB from financial lease of partial areas of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 to CPNRF. Excluding such gain, 3Q06 other income would have been 70.6% higher than the 111.7 MB of 3Q05's. Other income q-o-q increased 77.6% from 107.3 MB in 2Q06 primarily due to higher property management fees received from CPNRF and also from development fee received from Thai Business Fund 4 for the construction of the expansion phase of CentralWorld, which opened in August 2006.

Total Cost

Total cost of rental & service and food & beverage include utilities, depreciation and amortization on rented properties, on-site personnel, repair & maintenance and property tax. In 3Q06 CPN reported total cost of 958.4 MB, up 9.5% y-o-y. Excluding cost of Central Plaza Rama 2 and Central Plaza RatchadaRama 3, 3Q06 total cost of the company's other properties increased 18.1% y-o-y, primarily as a result of additional depreciation of the expansion phase of CentralWorld, higher cost at Central Town Rattanathibet since it was launched in September 2005 and higher utility costs at all properties due to increased electricity rate (FT Baht per unit).

Total cost grew 7.3% q-o-q, attributed to incremental costs associated with the opening of CentralWorld, including additional depreciation of the expansion phase and higher electricity cost.

Total Operating and Administration Expenses

Total operating and administration expenses include expenses on personnel, advertising and promotion, office supplies, professional fees, depreciation and amortization on office equipments. In 3Q06, operating and administration expenses amounted to 288.1 MB, a drop of 54.5% y-o-y, as that of 3Q05 included a non-cash write-off of 406.6 MB as a result of impairment of assets under development and partial expense of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 which were transferred out to CPNRF in mid August 2005. Excluding the write-off and expenses of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 in 3Q06 and 3Q05, operating and administration expenses in 3Q06 would have increased 31.9% y-o-y. The result was mainly due to higher advertising and promotion spending at CentralWorld and higher personnel expense at CPN's head office.

Compared to the previous quarter, operating and administration expenses grew by 41.6% q-o-q, reflecting a significant increase in advertising and promotion expense for marketing activities during and after the opening of CentralWorld's newly opened phase.

Net Profit

In 3Q06, net profit registered 431.7 MB, down by 80.1% y-o-y, as that of 3Q05 included a gain of 2,766.7 MB (1,936.7 MB net of tax) for the financial lease of the partial areas of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 to CPNRF and a write-off (non-cash) of 406.6 MB (284.6 MB net of tax) as a result of impairment of assets under development. Excluding the gain and write-off and other related items (Tax of 708.0 MB from gain and write-off and 113.9 MB of minority interest on the impairment of assets under development), net profit for 3Q06 would have been 5.9% higher than 3Q05 net profit of 407.6 MB, due to increase in total revenue as previously mentioned.

Compared to the previous quarter, 3Q06 net profit was flat q-o-q. Although operating profit increased 6.9% to 698.9MB in 3Q06, higher interest expense primarily from the issuance of two bonds with a total value of 1,500 MB in June 2006 eroded net profit in Q306. Interest expense increased from 141.8 MB in 2Q06 to 184.3 MB in 3Q06 or an increase of 30.0% q-o-q.

Financial Position as at Sept 30, 2006

Assets

As of September 30, 2006, the consolidated assets amounted to 33,326.0 MB, an increase of 536.0 MB, or 1.6% q-o-q. Total current assets declined by 787.8 MB, or 14.2% q-o-q, mainly due to cash payment for land acquisition of KhonKaen project and payment for construction and renovation of CentralWorld and asset enhancement projects at Central Plaza Ramindra and Central Town Rattanathibeth. Current investments, however increased by 650.5 MB from 3.4 MB in 2Q06 due to purchases of fix income instruments by Thai Business Fund 4. Non-current assets increased by 1,323.9 MB or 4.9% mainly attributed to the increase of net property and equipment amounted from construction in progress of CentralWorld, Central Plaza Ramindra and Central Town Rattanathibeth.

Liabilities

Consolidated liabilities at September 30, 2006 stood at 21,103.4 MB, an increase of 112.1 MB, or 0.5% q-o-q. Current liabilities increased by 8.6% q-o-q to 4,113.6 MB due mainly to higher contractor payable and other current liabilities which increased by 154.6 MB and 191.9 MB respectively. Non-current liabilities however declined by 213.8 MB or 1.2% mainly due to reduction of long-term interest bearing debt from 9,451.1 MB in 2Q06 to 9,107.0 in 3Q06 or a decline of 3.6%. This decline mainly came from the repayment of debts associated with the Thai Business Fund 2, 4 and 5. At the end of 3Q06, total interest bearing debt was 11,331.5 MB accounting for 53.7% of total liabilities.

Shareholders' Equity

As of September 30, 2006, Shareholders' equity stood at 12,222.6 MB, an increase of 423.9 MB, or 3.6% q-o-q. The increase was attributed to net income from 3Q06 of 431.7 MB.

Profitability

Gross Profit Margin

3Q06 gross profit margin was 44.2%, down from 47.7% in 3Q05. Excluding performance of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 in 3Q06 and 3Q05 for comparative purpose, gross profit margin would have been 47.9%, a decline from 50.6% in 3Q05. The decrease was mainly due the erosion of gross profit margin at CentralWorld due to higher utility cost and additional depreciation expense from the opening of the expansion phase of CentralWorld

Gross margin increased slightly from 44.1% in 2Q06 to 44.2% in 3Q06 primarily due to the recovery of margins at CentralWorld, in which revenues have begun to cover its costs.

Net Profit Margin

3Q06 net profit margin dropped to 22.2% from 47.7% in 3Q05, as there was net gain from two non-recurring items included in 3Q05 net profit. Excluding these two non-recurring items and their related transactions, 3Q05 net profit margin would have been 22.7%. This slight decline in net profit margin in 3Q06 was effectively due to CentralWorld's low gross margin.

Net profit margin decreased slightly from 24.6% in 2Q06 to 22.2% in 3Q06, mainly due to higher interest expense incurred from the issuance of debentures in June 2006 which increased q-o-q interest expense by 30.0%.

Return On Equity

Return on equity in 3Q06 was 15.1%, down from 89.2% of that in 2Q05, due to gain for the financial lease of the partial areas of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 to CPNRF booked in 3Q05.

Return on equity remained flat q-o-q from 15.1% in 2Q06.

Capital Structure

Net debt to equity remained at 0.6 times.

The financial position remained strong in 3Q06 since net interest bearing debt to equity stood at 0.6 times. Compared to the previous quarter there was a slight increase in net debt due to a reduction of cash and cash equivalent to purchase land and for payment of construction and renovation mainly at CentralWorld, whilst equity also grew slightly mainly from 3Q06 net income.

Interest coverage ratio dropped slightly from 6.5 times in 2Q06 to 6.2 times in 3Q06. The change was due to an increase in interest expense of 42.6 MB or 30.0% since CPN incurred more debt from the issuance of debentures in June 2006 amounted to 1,500 MB.

Obligation recovery service increased slightly from 0.5 times in 2Q06 to 0.6 times in 3Q06 attributed to a reduction of cash outflow obligation since there was no dividend payout in 3Q06 as there was in 2Q06 of 871.5 MB.

In 3Q06, CPN repaid long-term borrowings of 383.3 MB mainly for its Thai business fund 2, 4 and 5. As of Sept 30, 2006 interest-bearing debt comprised of 61% fixed and 39% floating interest rate with weighted average interest of 5.6% per annum. The weighted average interest rate slightly increased from 5.4% in 2Q06 mainly due to the bonds that were issued in June 2006 that carried higher coupon rates compared to existing borrowings and due to the impact of the increased proportion of floating interest rate borrowings which have higher interest rates than the fixed borrowings.

Table 2: Key Financial Ratios

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

Operations

As of Sept 30, 2006 total leasable area stood at 825,524 sqm, which includes 673,958 sqm of retail space, 145,193 sqm of office space and another 6,373 sqm of residential space. Total retail leasable area increased by 57,302 sqm or 9.3% mainly due to the opening of CentralWorld's newly opened phase, which added 59,932 sqm of new leasable area at CentralWorld or an increase of 47.5% over the leasable area of 126,045 sqm at 2Q06. 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 for retail malls decreased from 88% in 2Q06 to 84% in 3Q06.This was attributed largely to the enormous renovation work at CentralWorld and also to 2 asset enhancement projects at Central Plaza Ramindra and Central Plaza Ratchada-Rama3. At 3Q06, occupancy at CentralWorld dropped to 51% from 56% in the previous quarter due to unoccupied areas in the newly opened phase. At Central Plaza Ramindra, a major renovation and repositioning project, which started in 2Q06, is continued into 3Q06. Leased back areas increased in 3Q06 therefore decreasing occupancy rate at the mall to 65% from 79% in the second quarter. At Central Plaza Ratchada-Rama 3, occupancy dropped from 92% in 2Q06 to 88% in 3Q06 due to an asset enhancement project to relocate the food court to another area thereby making the existing location available for the expansion of Central Department Store. Both asset enhancement projects are expected to be completed by 1Q07 and 2Q07 respectively.

Average occupancy rate for CPN's offices increased to 90% in 3Q06 from 86% at 2Q06. The main contributors were from the higher take up at The Offices at CentralWorld and Pinklao's Tower B office which increased to 90% and 52% respectively.

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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