Developers Diversified
Sonae Sierra Brazil Joint Venture
Acquisition Overview
Acquisition Overview
Acquire JV interest in nine shopping malls (3.4 msf) and retail management and leasing company
¾ Second largest retail portfolio in Brazil
¾ 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
¾ Favorable economic, demographic and consumer trends
¾ Highly fragmented retail real estate ownership
¾ Opportunity for JV to grow with the market
Establish market presence with experienced JV partners
¾ Sonae Sierra is a leading retail owner/manager/developer in Europe and Brazil
¾ Enplanta Engenharia is an established retail developer in Brazil
50% joint venture interest in Sonae Sierra Brazil, a fully integrated retail real estate company based in Sao Paulo
Acquisition Overview
Pricing
¾ Approximately $150 million (U.S.)
¾ Approximate 11% pro forma cap rate and 10% on leases in place
Accretion
¾ Estimated to be ~$0.035 per share (U.S.), net of taxes in Brazil
Financing
Joint Venture Overview
Open-ended Investment Term
¾ Provides access to new development opportunities and third party acquisitions in Brazil
Anticipated Growth
¾ Intent to double investment through development and third party acquisitions over the next three years
¾ Currently evaluating potential 460,000 sf ($75 million U.S.) retail development in Manaus, Amazonas
Substantial Value Creation
¾ Anticipated cap rate compression as market evolves
¾ Potential unleveraged development IRRs ~20%
Governance
¾ Equal representation in all decision-making, including Board of Directors, Advisory Committee and all related entities
Acquisition Highlights
Why Brazil? Why Now?
¾ Captures benefits of improving economic climate and emerging financial markets
¾ Ideal opportunity for entry into high-yield / high-growth market due to anticipated cap rate compression and value creation
¾ Highly fragmented retail ownership provides opportunities to consolidate market position
Acquisition Highlights
Why this portfolio?
¾ Excellent physical real estate in densely populated, urban infill locations in Sao Paulo
¾ 68% of real estate investment concentrated in Parque Dom Pedro, the largest shopping mall under one roof in South America
¾ Assets provide superior returns compared to investments in other markets
¾ 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
Acquisition Highlights
Why Sonae Sierra?
¾ Strong partner with proven track record in Brazil and Europe
¾ Local expertise enhanced by existing relationship with Enplanta Engenharia
¾ Extensive relationships and experience with retailers in Brazil and Europe
¾ Shared core competencies of retail leasing, management and development
¾ Owns/co-owns 40 shopping centers (17+ msf) in Portugal, Spain, Italy, Greece and Brazil
¾ Developing 15 new centers (5.5+ msf) in Portugal, Spain, Italy, Germany, Greece and Brazil
Sonae Sierra – Market Position
Experienced international retail owner / manager /
developer with track record of creating value through
investment in emerging markets
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
Nacional Iguatemi (General Growth) 8 2,059,831
Joao Carlos Paes Mendonca 4 2,038,185
Paulo Malzoni 3 916,436
Sonae Sierra
¾ Owned 50% by Sonae SGPS, Portugal’s biggest conglomerate
¾ Owned 50% by Grosvenor, a private international property group
¾ Leading retail owner / manager / developer in Europe
¾ 2005 European Retail Developer of the Year
¾ Second largest retail owner in Brazil
(1)
(1) General Growth is a partner in four assets.
Sonae Sierra – Market Position
$4 18.6%
214,654 Estrada do
Campo Limpo Campo Limpo Shopping
9. 9.3% 23.3% 60.1% 9.7% 18.6% 93.2% 68.2% 96.5% $5 262,531 Sao Bernardo de Campo Shopping Metropole 8. $5 237,549 Sao Paulo Tivoli Shopping 7. $7 194,547 Franca Franca Shopping 6. $8 338,676 Brasilia Patio Brasil Shopping
5. $10 286,804 Sao Paulo Plaza Sul 4. $22 276,837 Sao Paulo Boavista Shopping 3. $30 321,755 Sao Paulo Shopping Penha 2. $192 1,293,822 Campinas Parque Dom Pedro
1.
Name Location GLA (sf) Ownership % Property
Sonae Sierra Brazil Pro Rata
Totals 3,427,175
Portfolio Overview
(1)
(1)
(1)
(1) Sao Paulo metropolitan area.
(2) Developers Diversified’s pro rata ownership is 50% of Sonae Sierra Brazil’s ownership.
Total
$17.0 Other Assets / Other Liabilities - Net
$300.0 Sonae Sierra
Brazil Value ($Millions U.S.)
Venezuela Columbia Guyana Suriname French Guiana (France) Peru Bolivia Chile Argentina Uruguay Paraguay BRASÍLIA Manaus Rio Branco Cuíabá São Paulo Pôrto Alegre Rio de Janeiro Fortaleza Belém
Map of Brazil
1 3 Franca 21. Patio Brasil Shopping 2. Franca Shopping 3. Sao Paulo (7 properties) 4. Potential Development Project 4
Map of Sao Paulo Extended MSA
1 2 3 4 5 6 71. Parque Dom Pedro 2. Shopping Metropole 3. Shopping Penha 4. Boavista Shopping 5. Plaza Sul
6. Tivoli Shopping
Property
Portfolio Market Analysis
292,268 981,643
Campo Limpo Shopping
1,112,359 3,726,400
Parque Dom Pedro
567,823 1,890,829 Wtd. Avg. (based on GLA) 255,862 823,671 Shopping Metropole 270,548 918,709 Tivoli Shopping 147,277 498,400 Franca Shopping 114,085 354,256
Patio Brasil Shopping
166,286 500,055 Plaza Sul 299,497 982,676 Boavista Shopping 356,685 1,185,107 Shopping Penha Population
(within 30 minute drive)
Households (within 30 minute drive)
1. C&A (9) – Apparel (Popular European retailer, based in Belgium) 197.7 5.77%
2. Sonda Supermarket (2) – Grocery 168.9 4.93%
3. Lojas Americanas (7) – General Merchandise 162.1 4.73%
4. Center Lider(1) – Home Supply 148.1 4.32%
5. Renner(4) – Apparel 134.6 3.93%
6. ETNA (1) – Domestics & Home Furnishings 87.1 2.54%
7. BIG Hypermarket (1) (Wal*Mart subsidiary) 86.7 2.53%
8. Riachuelo (2) – General Merchandise 64.2 1.87%
9. Moviecom (3) – Movie Theater 60.7 1.77%
10. Marisa (6) – Apparel 55.2 1.61%
Subtotal 1-10 1,165.3 34.00%
Total Portfolio 3,427.2 100.00%
Top 10 Tenants by GLA
(Assumes 100% JV Ownership)
Major Tenant (units)
Total GLA (‘000 sf)
% Total GLA
¾ Inflation under control
¾ Interest rates stabilized
¾ Unemployment declining
¾ GDP growth rate expected to grow at a sustainable long term rate +4.0%
¾ Increased exports have led to trade surplus of +$40 million (U.S.)
¾ Brazil’s foreign debt at its lowest level in +10 years
¾ Currency stabilized; Real in place since 1994
¾ Lack of dependence on foreign oil provides for increased stability
Economic Overview
Risk profile has improved
dramatically
Stability and Growth
4.0% 4.0% 0.5% 3.6% 2.4% 3.8% -0.4% -1% 0% 1% 2% 3% 4% 5% 2000 2001 2002 2003 2004 2005 2006 (est.) 7.1% 8.8% 12.3% 11.5% 9.9% 9.0% 6.4% 0% 3% 6% 9% 12% 15% 2000 2001 2002 2003 2004 2005 2006 (est.) 19.5% 24.3% 16.0% 17.0% 18.0% 16.0% 16.0% 0% 5% 10% 15% 20% 25% 30% 2000 2001 2002 2003 2004 2005 2006 (est.) 6.0% 7.7% 8.3% 14.7% 7.6% 5.7% 5.0% 0% 3% 6% 9% 12% 15% 18% 2000 2001 2002 2003 2004 2005 2006 (est.)
Economic Indicators
Inflation Rate Interest Rate
Unemployment Rate GDP Growth Rate
0% 5% 10% 15% 20% 25% 30% 2000 2001 2002 2003 2004 2005
Economic Indicators
Income Growth Versus Inflation Rate
Year over Year Growth 26.5% 5.7% Income Growth Inflation Rate
Economic Indicators
$43.5 $40.0 $34.5 $27.0 $17.5 $3.5 ($1.2) -$5 $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 2000 2001 2002 2003 2004 2005 2006 (est.) Trade Balance $Millions (U.S.) $240.0 $230.0 $235.0 $245.0 $225.0 $200.0 $180.0 $150 $160 $170 $180 $190 $200 $210 $220 $230 $240 $250 2000 2001 2002 2003 2004 2005 2006 (est.) Foreign Debt OutstandingSource: Central Bank of Brazil.
Population Growth
¾ Population of 188 million expected to reach 260 million by 2050
¾ Younger working population is anticipated to increase the country’s productivity and drive economic growth.
World’s 10th largest economy, based on 2005 GDP of $877 billion (U.S.)
¾ Expected to be 8th largest economy by 2020 and 5th largest by 2050
United Nations names Brazil one of 10 best business locations for international companies (September 2006)
Economic Overview
Potential growth is compelling
to investors across all industries
Country2005 Population (millions) China 1,314 India 1,103 U.S. 300 Indonesia 223 Brazil 188
Shopping mall sales were over $18 billion (U.S.) in 2005
¾ 26% higher than 2004 sales of $14.5 billion (U.S.)
Shopping mall sales growing at significantly higher rate than total retail sales
¾ Historical sales growth: total retail sales (4.8%); malls (11%); dept. stores (30%)
Number of shopping malls have tripled over the last ten years
¾ 300+ shopping malls operating and 17 new centers expected to open in 2007
Shopping is an important leisure and social activity
¾ Local consumers highly focused on fashion and beauty
¾ Shopping malls offer a safe environment for families and young adults
Demographic trends driving sales growth
¾ Middle class is rapidly growing as a result of economic stability and expansion
¾ Upper and upper middle classes comprise 32+ million
Retail Real Estate Market Overview
Demographic and economic growth, combined with local
culture of consumerism, has led to tremendous growth
Increased foreign institutional investment
¾ Attracted by pricing and returns in undervalued market
¾ Highly fragmented retail real estate ownership creates value creation opportunities through consolidation
¾ 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 ¾ Foreign and domestic lenders aggressively pursuing opportunities in
emerging market
¾ Consumer credit experiencing tremendous growth
¾ Secondary market for securitized mortgage instruments already active
¾ Credit rating upgraded to BB (S&P) and Ba2 (Moody’s) in 2006
¾ Institutional grade credit rating expected within next few years
Retail Real Estate Market Overview
Despite recent growth, shopping center industry
is still in its infancy
Growth in Retail Real Estate Market
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 1966-70 1971-75 1976-80 1981-85 1986-90 1991-95 1996-00 2001-05 Square Feet (000s) Retail ConstructionAccumulated Retail Stock
Growth in Shopping Mall Sales
$0 $5 $10 $15 $20 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 $Billions (U.S.) 18% annualized growth over 11 years $18.3Population of 29 million
¾ One of the five largest urban areas in the world
¾ Would be the second largest state in the U.S.
Financial and industrial centre of Brazil
¾ Generates approximately 30% of Brazil’s GDP
Sao Paulo – Overview
95% of investment (seven assets) is concentrated
in Sao Paulo extended metropolitan area
State 2005 Population (millions) California 36.1 Sao Paulo 29.0 Texas 22.9 New York 19.3 Florida 17.8 Illinois 12.8
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%
Portfolio Highlights – Parque Dom Pedro
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)
Location: Sao Paulo GLA: 321,755
Year Built: 1992, expanded 2004 Sonae Sierra Brazil
Pro Rata Ownership: 68%
Portfolio Highlights – Shopping Penha
Description:
Three-level regional mall with three-level 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,
Location: Sao Paulo GLA: 276,837
Year Built: 2004 Sonae Sierra Brazil
Pro Rata Ownership: 93%
Portfolio Highlights – Boavista Shopping
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:
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 8th 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.).
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, 2005.
