SONAE IMOBILIÁRIA
Consolidated Accounts 1st Quarter of 1999
INTRODUCTION
Sonae Imobiliária's unaudited Net Consolidated Profits (after Minority Interests) grew 30.1%, from PTE 595 million (€ 3.0 million), in the first quarter of 1998, to PTE 774 million (€ 3.9 million) in the first quarter of 1999. During this period, its share price decreased by 9,18% relative to December 31st, 1998, while the BVL 30 index decreased by 3,66%, taking the market capitalisation of the Company at quarter-end to PTE 111.6billion (€ 556.6 million).
In December 31st, 1998, Sonae Imobiliária had all its real estate assets valued independently on anopen-market basis. The Company's properties were valued at PTE 235.9 billion (€ 1.18 billion) in total, ofwhich PTE 130.2 billion (€ 649.5 million) are attributable to the Company.
ORGANISATION
In line with the Company's globalisation strategy, Sonae Imobiliária reviewed its internal organisation andchanged the names of the companies Viacentro (development services) and SPCC (operation manager andleasing services) to Sonae Imobiliária Serviços, SA and Sonae Imobiliária Gestão, SA, respectively, thusenhancing Sonae Imobiliária's brand, more and more internationally recognised as a shopping centre leader.
SHOPPING CENTRES
DEVELOPMENT AND INVESTMENT
Norteshopping, in Matosinhos, opened to the public in October last year and is performing in line withexpectations. During this years' first quarter NorteShopping has received 4,6 million visits and its sales(excluding Continente Hypermarket) have reached PTE 7.2 billion (€36.1 million).
During the recent 1999 ICSC Europe (Madrid), NorteShopping has received an award in the Refurbishment/Expansion category for its overall quality.
On the 21st April this year, the Company, together with ING - our 50% partner in this shopping centre -, opened, on time and within budget, Centro Vasco da Gama, in Lisbon in the old Expo 98 site, with 164 shops and 46,000 m2 of GLA, fully let. During its first week of operation Centro Vasco da Gama hasreceived more than 518,000 visits.
The Company is preparing a comprehensive renovation and extension of Cascaishopping, of which the first phase was opened on the 28th April 1999, fully let. The three-phase expansion shall increase the shopping GLA by around 11,000 m2, adding 62 more shops, 2,000 m2 of cinemas and 1,140 car parking
places, representing an investment of around PTE 9.3 billion (€ 46.4 million). We have firm commitments from tenants for the second phase, which shall include FNAC as an anchor store. The twolast expansion phases are still under licensing process.
The Grandella building, in old downtown Lisbon, is already fully let, with the Sportzone unit havingopened in November 1998 and the Oásis unit in April 1999. Valentim de Carvalho and Perfumes &Companhia units are expected to be open during the second semester of this year.
Following the opening of Norteshopping and Centro Vasco da Gama and the acquisition of the leaseholdin the Grandella building, Sonae Imobiliária is the owner or co-owner of 9 shopping centres and 3 shopping galleries, with a total of 460,700 m2 of GLA.
During the first quarter of 1999, the total rental and other income from these assets continued to grow substantially (35%), from PTE 2,6 billion (€ 13.1 million), in the first quarter of 1998, to PTE 3.6 billion (€ 17.8 million).
At the end of this quarter, the operating portfolio represented 1,426 units, of which only 38 were unlet, implying an occupancy rate of 97.3%.
The Company has continued to develop various projects in Portugal, namely in Madeira and Algarve. In both cases licensing is under way, although it is still too soon to indicate opening dates.
MadeiraShopping shall have around 18,000 m2 of GLA and will be anchored by a Modelo Supermarketand a multiplex cinema. Total investment is estimated to be PTE 6.3 billion (€ 31.1 million) to be sharedwith a 50% local partner.
AlgarveShopping shall have around 40,000 m2 of GLA and will be anchored by a ContinenteHypermarket and a large multiplex cinema. Total investment is estimated to be PTE 10.1 billion (€ 50.6million), excluding the hypermarket.
In consolidated terms, Sonae Imobiliária's net capital investment amounted to PTE 68 million (€ 339thousand) during the first quarter of 1999. This figure does not include PTE 2,6 billion (€ 12.7 million)which were invested, during this period, in Vasco da Gama - Promoção de Centros Comerciais, SA, acompany consolidated under the equity method.
Sonae Imobiliária has continued its efforts to expand in Europe and Brazil. The Company has analysedseveral business opportunities for the development of new shopping centres or the acquisition of existingones, in those two areas. In this context, the Company has acquired a plot of land in Malaga (Spain) to develop a retail and leisure centre with 30,000 m2 of GLA, anchored by a "megaplex" cinema. This project will be developed together with our 25% partner Castle City.
In February 1999, Sonae Imobiliária concluded a joint-venture agreement with the Charagionis Group, amajor Greek developer and retailer, with a view to developing shopping centres in Greece. Thisagreement resulted in the incorporation of Sonae Charagionis, SA, based in Athens, owned 50% each bySonae Imobiliária and the Charagionis Group. Through this vehicle both partners shall concentrate theirinvestment efforts in shopping centres in Greece, around the 4.7 million population of Greater Athens.
MANAGEMENT
The consolidated business of our shopping centre management, marketing and leasing activities, hascontinued to grow as the Company's assets under management have increased. After the opening of Centro Vasco da Gama , Sonae Imobiliária is managing 671,000 m2 of GLA.
The consolidated turnover of Sonae Imobiliária Gestão, including rents, service charges and key money collected from the whole of the portfolio under management grew by 61.6%, to reach PTE 8.1 billion (€ 40.3 million).
The performance of the 8 operating shopping centres under management was very satisfactory in thisfirst quarter of 1999, with visitors and sales growing by 35.5% and 46% respectively, relative to the firstquarter of 1998. On a like-for-like basis, visitors grew by 12.3% and sales by 18%.
Sonae Imobiliária is particularly proud of the results achieved at Centro Colombo. Comparing 1998 and 1999 first quarter figures, its visitors and sales have grown 41.4% and 33.2% respectively.
CAR PARKS
During the first quarter of 1999, SPEL generated a turnover of PTE 152 million (€ 755 thousand), an increaseof 16.6% in relation to the first quarter of 1998.
The growth of SPEL shall continue through new municipal concessions in Viseu - already contracted and withinvestment in progress - and in Praça do Infante, Porto, where the contract is being finalised, and with theinclusion in its management portfolio of the car park at Centro Vasco da Gama, Lisbon, with 2,900 parking spaces.
RESIDENTIAL
Praedium, the specialist subsidiary focused on residential development, has started construction of DouroFoz, Porto, and shall be starting construction of S. Gabriel Tower, Lisbon, during next quarter.
As stated in previous reports, both pre-sales campaigns of the residential components of the developmentswere very successful, with 85% and 75% of the apartments sold, respectively.
FINANCIAL POSITION AND RESULTS
FINANCIAL PERFORMANCE
In consolidated terms Sonae Imobiliária finished the first quarter of 1999 with total revenue of PTE 8,6billion (€ 42.7 million), representing a growth of 59.3% relative to the same period of the previous year.This growth was due principally to the contribution from NorteShopping and to the growth in rents in allSonae Imobiliária's shopping centres.
The operating profit was PTE 1.0 billion (€ 5.2 million), up 106.4% relative to the first quarter of 1998.
The decrease in financial results is a consequence of increased liabilities to fund the investmentprogramme of the Company, in spite of a significant reduction in interest rates and re-negotiation of some of our bank loan terms.
Sonae Imobiliária's current results showed a significant 71% growth, relative to the first quarter of 1998,reaching PTE 1.1 billion (€ 5.6 million).
Associated Companies' results reflect mainly the good performance of Centro Colombo and MinorityInterests are a consequence of the profit generated by NorteShopping, during this first quarter of 1999.
Profits before taxes grew by 93.4% to reach PTE 1.3 billion (€ 6.7 million) and net consolidated profits(after Minority interests) grew 30.1%, from PTE 595 million (€ 3.0 million), in the first quarter of 1998,to PTE 774 million (€ 3.9 million) in the same period of 1999.
THE YEAR 2000 BUG
Sonae Imobiliária, in its various businesses and companies, has analysed during 1998 and this first quarterof 1999 the risks that can arise with the new millennium, and has identified the following two potential ones:
Companies' information systems (software and hardware);
Shopping centre equipment (lifts, escalators, building management systems, etc.)
Relative to the first, the Company decided to adopt the SAP software package, which is Euro compliant andimmune to the year 2000 bug, and the replacement of part of the hardware used by several companies. Thissystem, installed in all Sonae Imobiliária's companies, was operational on the first working day of 1999, andwill cost around PTE 130 million (€ 648 thousand), of which around PTE 105 million (€ 524 thousand) werealready incurred.
Relative to the second, the Company started last year an audit to the equipment in all its shopping centresand has asked from suppliers for certificates of conformity of the equipment installed, all of which SonaeImobiliária anticipates to have finalised during the first semester of this year. In the centres audited so far,no significant problems have been found.
Maia, 29th April 1999.
The Board of Directors.