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SETTING THE PACE MACQUARIE MEAG PRIME REIT ANNUAL REPORT 2006 MMP REIT Mission Contents 01 Highlights of the year Macquarie MEAG Prime REIT 02 Financial highlights (MMP REIT) is a Singapore-based 04 At the heart of the action 06 The outlook is upbeat real estate investment trust investing 08 A glowing health report 10 Message from the Chairman and primarily in real estate used for Chief Executive Officer 14 Property portfolio summary retail and/or office purposes, both 18 The Wisma Atria Property 24 The Ngee Ann City Property in Singapore and overseas. 28 Market overview As Manager of MMP REIT, 30 Board of directors 32 Management Macquarie Pacific Star Prime REIT 36 Capital management 37 Investor relations Management Limited is committed 38 Community development to delivering long-term stable 39 Corporate governance 47 Financial statements distributions and capital growth 79 Additional information 80 Glossary to MMP REIT’s investors. IBC Corporate directory Portfolio at a glance Wisma Atria Property Ngee Ann City Property Description 74.23% of the total share value of Description 27.23% of the total share value of Wisma Atria Ngee Ann City Net lettable area 1 227,992 sq ft Net lettable area 1 397,083 sq ft Occupancy 1 100.0% retail Occupancy 1 100.0% retail 96.7% office 98.6% office Valuation 2 $750 million Valuation 2 $748 million Notes: 1 As at 31 December 2006 2 Valuation by Cushman & Wakefield as at 31 December 2006 MACQUARIE MEAG PRIME REIT ANNUAL REPORT 2006 Highlights of the year 01 Highlights of the year Consistent outperformance with new milestones achieved Significant events in 2006 March 2006 September 2006 MMP REIT’s distributable income MMP REIT’s distributable income exceeded IPO Projection by 11.1% exceeded IPO Projection by 9.1% for 1Q06 for 3Q06 June 2006 October 2006 MMP REIT’s distributable income Launch of marketing campaign exceeded IPO Projection by 10.0% “Basement by Wisma Atria” following for 2Q06 closure of Orchard MRT linkway to Wisma Atria on 30 September July 2006 MMP REIT was assigned a first time The Manager strengthened its investment corporate family rating of “Baa1” and asset management team capabilities with a stable outlook by Moody’s for regional expansion Investors Service, reflecting MMP REIT’s high quality of assets and December 2006 strong management expertise MMP REIT recorded its highest quarterly distribution per unit of 1.47 cents for Wisma Atria was the only Singapore 4Q06; distributable income exceeded finalist in the prestigious 2006 IPO Projection by 11.5% for same period MAXI Awards, the most coveted international retail marketing award New escalators next to GAP flagship in the shopping centre industry from store installed ahead of schedule to New York-based International Council bring shopper traffic back to Wisma of Shopping Centers Atria basement Opening of GAP’s first flagship store in Asia, outside Japan, at Wisma Atria 02 MACQUARIE MEAG PRIME REIT ANNUAL REPORT 2006 Financial highlights Financial highlights FY 2006 Actual IPO Change Projection Gross revenue Gross revenue Percentage change $89.9m $87.8m +2.3% Net property income Net property income Percentage change $69.3m $66.4m +4.3% Distributable income Distributable income Percentage change $54.9m $49.7m +10.4% Distribution per unit Distribution per unit Percentage change 5.79 cents 5.25 cents +10.3% Annualised distribution yield Annualised distribution yield 5.91% 5.36% IPO price ($0.98) IPO price ($0.98) 4.95% 4.49% 29 Dec 2006 price ($1.17) 29 Dec 2006 price ($1.17) Net asset value per unit Net asset value per unit Percentage change $1.16 $0.99 +17.2% As at 31 Dec 2006 As at 31 Dec 2005 MACQUARIE MEAG PRIME REIT ANNUAL REPORT 2006 Financial highlights 03 MMP REIT unit price and volume since IPO 1 January to 31 December 2006 (20 Sept 2005 – 31 Dec 2006) Opening price (3 Jan 06) $0.95 Closing price (29 Dec 06) $1.17 High (29 Dec 06) $1.17 Low (31 Aug 06) $0.885 Volume traded (in million units) 465.0 $ ’000 1.20 180,000 1.10 135,000 1.00 90,000 0.90 45,000 0.80 0 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Source: Bloomberg Daily volume (units) Last price ($) Balance sheet as at 31 December 2006 Total assets $1,525.8m Total liabilities $427.3m Unitholders’ equity $1,098.5m Net asset value per unit $1.16 per unit Market capitalisation 1 $1,108.0m Note: 1 Based on closing price of $1.17 per unit as at 29 December 2006. Units in issue as at 31 December 2006 were approximately 947.4 million 04 MACQUARIE MEAG PRIME REIT ANNUAL REPORT 2006 At the heart of the action At the heart of the action Our prime Orchard Road properties performed spectacularly on the back of buoyant demand and strengthening rents. Retail occupancy remained resilient at 100%, while office occupancy reached 97.8%. As a result, both net property income and distributable income throughout the year exceeded our IPO Projections. MACQUARIE MEAG PRIME REIT ANNUAL REPORT 2006 At the heart of the action 05 Retail occupancy consistently at 100% 1 Occupancy (%) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 As at As at As at As at 31 Mar 06 30 Jun 06 30 Sep 06 31 Dec 06 NAC WA Office occupancy at high of 97.8% 1, 2 Occupancy (%) 98.6 94.0 95.3 95.2 97.8 95.9 98.4 96.7 As at As at As at As at 31 Mar 06 30 Jun 06 30 Sep 06 31 Dec 06 NAC WA Notes: 1 As at 31 December 2006 2 Weighted average of WA and NAC Net property income consistently higher than projection Net property income ($m) 17.3 17.3 17.4 16.4 16.6 16.7 16.7 17.2 1Q06 2Q06 3Q06 4Q06 IPO Projection Actual Distributable income consistently higher than projection Distributable income ($m) 13.6 13.6 13.7 14.0 12.3 12.4 12.5 12.5 1Q06 2Q06 3Q06 4Q06 IPO Projection Actual 06 MACQUARIE MEAG PRIME REIT ANNUAL REPORT 2006 The outlook is upbeat The outlook is upbeat The proportion of Wisma Atria retail leases with base rent plus turnover rent continued to increase throughout 2006. This is in line with our strategy to maintain a stable base rent while growing our revenue streams from higher retailer sales. With nearly 86,000 square feet of office space expiring in 2007 at rents below market, MMP REIT is expected to ride on the momentum of Singapore’s office rental upswing. MACQUARIE MEAG PRIME REIT ANNUAL REPORT 2006 The outlook is upbeat 07 Higher proportion of leases with base rent plus turnover rent structure Lease structure (by % of WA retail NLA) 66.0 53.0 47.0 33.0 Higher of base Base rent rent or GTO plus GTO Dec 05 Dec 06 Rental rates of expiring office leases below market rate 96,638 85,789 6.00 5.00 5.00 41,301 5.20 5,167 2007 2008 2009 beyond 2009 Office expiry by NLA (sq ft) Expiring office leases average monthly gross rent ($ psf pm) 1 Note: 1 Average monthly gross rent rounded to nearest cent 08 MACQUARIE MEAG PRIME REIT ANNUAL REPORT 2006 A glowing health report A glowing health report Since IPO, our unitholders have benefited from a trading yield of 4.99%. This is more attractive than yields from the average Singapore REIT, Singapore government bonds, CPF savings and bank fixed deposits. Our prudent capital management approach also enabled us to deliver higher returns than projected. MMP REIT yield four times higher than bank DPU outperformed IPO Projection fixed deposit rate DPU (cents) Returns (%) 5.60 5.79 +10.3% +14.3% 4.95 5.25 4.90 3.4% 4.54 4.07% higher 3.05 3.03 2.50 0.88 MMP SREIT 10 Yr 5 Yr CPF Bank FY2005 FY2006 REIT annualised Spore Spore ordinary fixed IPO Projection FY 2006 average Govt Govt account 4 deposit yield 1 yield bond 3 bond 3 rate (12 Actual (ex MMP month) 5 REIT) 2 Notes: 1 Based on MMP REIT’s closing price of $1.17 per unit as at 29 Dec 2006 and actual distribution of 5.79 cents for FY 2006 2 SREITs 2006F DPU per IBES analyst consensus as at 29 Dec 2006 and using last closing price as at 29 Dec 2006 3 As at 29 Dec 2006 (Source: Singapore Government Securities website) 4 Based on interest paid on Central Provident Fund (CPF) ordinary account from Oct to Dec 2006 (Source: CPF website) 5 As at Dec 2006 (Source: MAS website) Prudent capital management As at 31 December 2006 Gearing ratio 1 25.6% Interest cover 4.4x Fixed rate debt 97.2% Weighted average interest rate 3.2% p.a. Note: 1 Based on deposited property as defined in the trust deed MACQUARIE MEAG PRIME REIT ANNUAL REPORT 2006 A glowing health report 09 10 MACQUARIE MEAG PRIME REIT ANNUAL REPORT 2006 Message from the Chairman and CEO Message from the Chairman and Chief Executive Officer Dear Unitholders MMP REIT outperformed prospectus forecasts in each quarter of the year and delivered total distribution per unit of 5.79 cents to unitholders From left: Stephen Girdis (Chairman) and Franklin Heng (CEO) MACQUARIE MEAG PRIME REIT ANNUAL REPORT 2006 Message from the Chairman and CEO 11 On behalf of the Board of Macquarie Pacific Star Prime rent sectors, an increase in variable rent contributions REIT Management Limited, as Manager of MMP REIT, and a reconfiguration of retail space, bore tangible we are pleased to present the report of MMP REIT for results in 2006 and we expect to reap even greater the financial year ended 31 December 2006.