Developers Diversified Sonae Sierra Brazil Joint Venture. Acquisition Overview

Transcription

1 Developers Diversified Sonae Sierra Brazil Joint Venture Acquisition Overview

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4 Acquisition Overview 50% joint venture interest in Sonae Sierra Brazil, a fully integrated retail real estate company based in Sao Paulo Acquire JV interest in nine shopping malls (3.4 msf) and retail management and leasing company Second largest retail portfolio in Brazil 68% of real estate investment concentrated in the largest shopping mall under one roof in South America Enter emerging market that has significant potential for value-creation Favorable economic, demographic and consumer trends Highly fragmented retail real estate ownership Opportunity for JV to grow with the market Establish market presence with experienced JV partners Sonae Sierra is a leading retail owner/manager/developer in Europe and Brazil Enplanta Engenharia is an established retail developer in Brazil 4

5 Acquisition Overview Pricing Approximately $150 million (U.S.) Approximate 11% pro forma cap rate and 10% on leases in place Accretion Estimated to be ~$0.035 per share (U.S.), net of taxes in Brazil Financing Senior unsecured line of credit 5

6 Joint Venture Overview Open-ended Investment Term Provides access to new development opportunities and third party acquisitions in Brazil Anticipated Growth Intent to double investment through development and third party acquisitions over the next three years Currently evaluating potential 460,000 sf ($75 million U.S.) retail development in Manaus, Amazonas Substantial Value Creation Anticipated cap rate compression as market evolves Potential unleveraged development IRRs ~20% Governance Equal representation in all decision-making, including Board of Directors, Advisory Committee and all related entities 6

7 Acquisition Highlights Why Brazil? Why Now? Captures benefits of improving economic climate and emerging financial markets Ideal opportunity for entry into high-yield / high-growth market due to anticipated cap rate compression and value creation Highly fragmented retail ownership provides opportunities to consolidate market position 7

8 Acquisition Highlights Why this portfolio? Excellent physical real estate in densely populated, urban infill locations in Sao Paulo 68% of real estate investment concentrated in Parque Dom Pedro, the largest shopping mall under one roof in South America Assets provide superior returns compared to investments in other markets Opportunity to increase rents and improve credit profile of tenants by working with retailers based in the U.S., Europe and Brazil and interested in expanding in Brazil 8

9 Acquisition Highlights Why Sonae Sierra? Strong partner with proven track record in Brazil and Europe Local expertise enhanced by existing relationship with Enplanta Engenharia Extensive relationships and experience with retailers in Brazil and Europe Shared core competencies of retail leasing, management and development 9

10 Sonae Sierra Market Position Experienced international retail owner / manager / developer with track record of creating value through investment in emerging markets Owns/co-owns 40 shopping centers (17+ msf) in Portugal, Spain, Italy, Greece and Brazil Developing 15 new centers (5.5+ msf) in Portugal, Spain, Italy, Germany, Greece and Brazil 10

11 Sonae Sierra Market Position Sonae Sierra Owned 50% by Sonae SGPS, Portugal s biggest conglomerate Owned 50% by Grosvenor, a private international property group Leading retail owner / manager / developer in Europe 2005 European Retail Developer of the Year Second largest retail owner in Brazil Largest Retail Owners (N. American Partner) Number of Assets Total GLA Multiplan Group (Cadillac Fairview) 9 4,328,656 Sonae Sierra Brazil / Developers Diversified 9 3,427,175 Iguatemi Group 7 2,373,495 (1) Nacional Iguatemi (General Growth) 8 2,059,831 Joao Carlos Paes Mendonca 4 2,038,185 Paulo Malzoni 3 916,436 (1) General Growth is a partner in four assets. Souce: Company reports. 11

12 Portfolio Overview Sonae Sierra Property Total Brazil Pro Rata Name Location GLA (sf) Ownership % Sonae Sierra Brazil Value ($Millions U.S.) 1. Parque Dom Pedro Campinas (1) 1,293, % $ Shopping Penha Sao Paulo 321, % $30 3. Boavista Shopping Sao Paulo 276, % $22 4. Plaza Sul Sao Paulo 286, % $10 5. Patio Brasil Shopping Brasilia 338, % $8 6. Franca Shopping Franca 194, % $7 7. Tivoli Shopping Sao Paulo 237, % $5 8. Shopping Metropole Sao Bernardo (1) de Campo 262, % $5 9. Campo Limpo Shopping Estrada do Campo Limpo (1) (1) 214, % $4 Other Assets / Other Liabilities - Net Totals 3,427,175 $17.0 $300.0 (1) Sao Paulo metropolitan area. (2) Developers Diversified s pro rata ownership is 50% of Sonae Sierra Brazil s ownership. 12

13 Map of Brazil Venezuela Guyana Columbia Manaus 4 Suriname French Guiana (France) Belém Fortaleza Rio Branco Peru Chile Bolivia Paraguay Argentina Uruguay Cuíabá BRASÍLIA 1 Franca 2 São Paulo 3 Pôrto Alegre Rio de Janeiro 1. Patio Brasil Shopping 2. Franca Shopping 3. Sao Paulo (7 properties) 4. Potential Development Project 13

14 Map of Sao Paulo Extended MSA Parque Dom Pedro 2. Shopping Metropole 3. Shopping Penha 4. Boavista Shopping 5. Plaza Sul 6. Tivoli Shopping 7. Campo Limpo Shopping 14

15 Portfolio Market Analysis Property Parque Dom Pedro Population (within 30 minute drive) 3,726,400 Households (within 30 minute drive) 1,112,359 Shopping Penha 1,185, ,685 Boavista Shopping 982, ,497 Plaza Sul 500, ,286 Patio Brasil Shopping 354, ,085 Franca Shopping 498, ,277 Tivoli Shopping 918, ,548 Shopping Metropole 823, ,862 Campo Limpo Shopping 981, ,268 Wtd. Avg. (based on GLA) 1,890, ,823 Source: IBGE (Brazilian Institute of Geography and Statistics). 15

16 Top 10 Tenants by GLA (Assumes 100% JV Ownership) (1) Major Tenant (units) Total GLA ( 000 sf) % Total GLA 1. C&A (9) Apparel (Popular European retailer, based in Belgium) % 2. Sonda Supermarket (2) Grocery % 3. Lojas Americanas (7) General Merchandise % 4. Center Lider(1) Home Supply % 5. Renner(4) Apparel % 6. ETNA (1) Domestics & Home Furnishings % 7. BIG Hypermarket (1) (Wal*Mart subsidiary) % 8. Riachuelo (2) General Merchandise % 9. Moviecom (3) Movie Theater % 10. Marisa (6) Apparel % Subtotal , % Total Portfolio 3, % 16

17 Economic Overview Risk profile has improved dramatically Stability and Growth Inflation under control Interest rates stabilized Unemployment declining GDP growth rate expected to grow at a sustainable long term rate +4.0% Increased exports have led to trade surplus of +$40 million (U.S.) Brazil s foreign debt at its lowest level in +10 years Currency stabilized; Real in place since 1994 Lack of dependence on foreign oil provides for increased stability Sources: Goldman Sachs, Central Bank of Brazil. 17

18 Economic Indicators 18% Inflation Rate 30% Interest Rate 15% 14.7% 25% 24.3% 12% 9% 6% 6.0% 7.7% 8.3% 7.6% 5.7% 5.0% 20% 15% 10% 16.0% 19.5% 16.0% 17.0% 18.0% 16.0% 3% 5% 0% (est.) 0% (est.) 15% Unemployment Rate 5% GDP Growth Rate 12% 9% 6% 7.1% 6.4% 8.8% 12.3% 11.5% 9.9% 9.0% 4% 3% 2% 4.0% 4.0% 3.6% 2.4% 3.8% 3% 0% (est.) Sources: Central Bank of Brazil, Latin Focus Consensus Forecast. 1% 0% -1% -0.4% 0.5% (est.) 18

19 Economic Indicators Income Growth Versus Inflation Rate 30% 25% Income Growth Inflation Rate 26.5% Year over Year Growth 20% 15% 10% 5.7% 5% 0% Source: Central Bank of Brazil. 19

20 Economic Indicators $45 $40 $35 Trade Balance $34.5 $40.0 $43.5 $250 $240 $230 Foreign Debt Outstanding $245.0 $240.0 $235.0 $230.0 $225.0 $Millions (U.S.) $30 $25 $20 $15 $10 $17.5 $27.0 $Millions (U.S.) $220 $210 $200 $190 $180 $200.0 $180.0 $5 $0 -$5 ($1.2) $ (est.) $170 $160 $ (est.) Source: Central Bank of Brazil. 20

21 Economic Overview Potential growth is compelling to investors across all industries 2005 Population Country (millions) China 1,314 India 1,103 U.S. 300 Indonesia 223 Brazil 188 Population Growth Population of 188 million expected to reach 260 million by 2050 Younger working population is anticipated to increase the country s productivity and drive economic growth. World s 10 th largest economy, based on 2005 GDP of $877 billion (U.S.) Expected to be 8 th largest economy by 2020 and 5 th largest by 2050 United Nations names Brazil one of 10 best business locations for international companies (September 2006) Sources: Central Bank of Brazil, Latin Focus Consensus Forecast, Goldman Sachs. 21

22 Retail Real Estate Market Overview Demographic and economic growth, combined with local culture of consumerism, has led to tremendous growth Shopping mall sales were over $18 billion (U.S.) in % higher than 2004 sales of $14.5 billion (U.S.) Shopping mall sales growing at significantly higher rate than total retail sales Historical sales growth: total retail sales (4.8%); malls (11%); dept. stores (30%) Number of shopping malls have tripled over the last ten years 300+ shopping malls operating and 17 new centers expected to open in 2007 Shopping is an important leisure and social activity Local consumers highly focused on fashion and beauty Shopping malls offer a safe environment for families and young adults Demographic trends driving sales growth Middle class is rapidly growing as a result of economic stability and expansion Upper and upper middle classes comprise 32+ million Source: ABRASCE (Brazilian Association of Shopping Centers), Canadian Business. 22

23 Retail Real Estate Market Overview Despite recent growth, shopping center industry is still in its infancy Increased foreign institutional investment Attracted by pricing and returns in undervalued market Highly fragmented retail real estate ownership creates value creation opportunities through consolidation Significantly lower chain store market share compared to U.S. and Europe creates opportunities to facilitate tenant expansion Evolution of debt market will positively benefit shoppers and investors Foreign and domestic lenders aggressively pursuing opportunities in emerging market Consumer credit experiencing tremendous growth Secondary market for securitized mortgage instruments already active Credit rating upgraded to BB (S&P) and Ba2 (Moody s) in 2006 Institutional grade credit rating expected within next few years Source: Property Week, National Post, JPMorgan Chase. 23

24 Growth in Retail Real Estate Market 80,000 Square Feet (000s) 70,000 60,000 50,000 40,000 30,000 20,000 Retail Construction Accumulated Retail Stock 10, Source: ABRASCE (Brazilian Association of Shopping Centers). 24

25 Growth in Shopping Mall Sales $20 $18.3 $15 18% annualized growth over 11 years $Billions (U.S.) $10 $5 $ Source: ABRASCE (Brazilian Association of Shopping Centers). 25

26 Sao Paulo Overview 95% of investment (seven assets) is concentrated in Sao Paulo extended metropolitan area Population of 29 million One of the five largest urban areas in the world Would be the second largest state in the U.S. Financial and industrial centre of Brazil Generates approximately 30% of Brazil s GDP 2005 Population State (millions) California 36.1 Sao Paulo 29.0 Texas 22.9 New York 19.3 Florida 17.8 Illinois 12.8 Source: IBGE (Brazilian Institute of Geography and Statistics). 26

27 Portfolio Highlights Parque Dom Pedro Location: Campinas (Sao Paulo metro area) GLA: 1,293,822 (largest shopping mall under one roof in South America) Year Built: 2002 Sonae Sierra Brazil Pro Rata Ownership: 97% Description: Single level super-regional mall with anchors and inline tenants located primarily on ground level. Ground-level parking field. Food court and movie theater located on lower level. Expansion opportunities represent 159,000 sf of additional retail space. Key Tenants: C&A, Casas Bahia, Centauro, Center Lider, Covenac, ETNA, FNAC, Formula Academia, Lojas Americanas, Marisa & Familia, Pernamburanas, Renner, Riachuelo, Zara, Star Bowling, BIG Hypermarket (Wal*Mart subsidiary) 27

28 Portfolio Highlights Parque Dom Pedro 28

29 Portfolio Highlights Shopping Penha Location: Sao Paulo GLA: 321,755 Year Built: 1992, expanded 2004 Sonae Sierra Brazil Pro Rata Ownership: 68% Description: Three-level regional mall with threelevel structured parking. Anchor tenants located on ground level and second floor. Second floor occupied by inline shops and food court. Sonda supermarket and Kalunga located on lower level. Movie theater located on upper mezzanine level. Key Tenants: C&A, Lojas Americanas, Kalunga, Marisa & Familia, Sonda Supermarket, Moviecom Penha 29

30 Portfolio Highlights Shopping Penha 30

31 Portfolio Highlights Boavista Shopping Location: Sao Paulo GLA: 276,837 Year Built: 2004 Sonae Sierra Brazil Pro Rata Ownership: 93% Description: Three-level regional mall with three-level structured parking. Anchor tenants located on ground level. Upper level occupied by inline shops and food court. Sonda supermarket located on lower level. Movie theater located on the upper mezzanine level. Key Tenants: C&A, Casas Bahia, Marisa & Familia, Sonda Supermarket, Moviecom 31

32 Portfolio Highlights Boavista Shopping 32

33 Future Development Manaus Location: Manaus, Amazonas GLA: 464,219 sf Expected Opening: Late 2008 Anticipated Gross Investment (U.S.): $75,000,000 Sonae Sierra Brazil Pro Rata Ownership: 100% Description: Three-level regional mall located in a prime trade area, with over 1.1 million residents located within a 15 minute drive of the center. Tenant mix will include eight anchors, plus a supermarket, theater, and a health club, as well as inline and restaurant tenants. Manaus: With a population of 1.5 million, Manaus is Brazil s 8 th largest city. The city is a popular tourist destination and is a regional draw for shopping due to its status as Brazil s only Free Trade Zone (comparable to duty-free status in the U.S.). 33

34 Safe Harbor Statement Developers Diversified considers portions of this information to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to the Company's expectation for future periods. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. For this purpose, any statements contained herein that are not historical fact may be deemed to be forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including, among other factors, local conditions such as oversupply of space or a reduction in demand for real estate in the area, competition from other available space, dependence on rental income from real property, the loss of a major tenant, constructing properties or expansions that produce a desired yield on investment or inability to enter into definitive agreements with regard to our financing arrangements or our failure to satisfy conditions to the completion of these arrangements. For more details on the risk factors, please refer to the Company's Form on 10-K as of December 31,

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