Maia, November 6th 2007
A 33% growth compared to the same period of 2006
Sonae Sierra reached a Net Profit of €206.6 million at the end of the third quarter
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Direct Net Profit up 18% to €64.3 million
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Net Operating Margin grows 5% to €109.7 million
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NAV per share reaches €49.75
Two inaugurations in one quarter
As part of its growth and expansion strategy, Sonae Sierra continued to develop, during the third quarter of 2007, a significant portfolio of projects in different stages, and continued to actively seek new business opportunities in markets where the company is currently present and in new markets.
The most significant events of the third quarter include the inauguration of two new shopping centres: the first was Alexa, a shopping and leisure centre in Berlin, which represented an investment of €290 million, and the second was 8ª Avenida, in S. João da Madeira, which represented an investment of €54.3 million.
In terms of new projects, Sonae Sierra presented Pantheon Plaza to the public, which will be the largest shopping and leisure centre in Larissa, Greece, scheduled to be inaugurated in 2008 and representing an investment of about €76.3 million. In Brazil, the Company has presented the Manauara Shopping project, in Manaus, an investment of €67 million, scheduled to be inaugurated in the Spring of 2009.
Also during this quarter, Sonae Sierra announced that its partnership with ING Real Estate for the development of the Colombo Towers is now part of a consortium with Iberdrola/Caixa Geral de Depósitos. This new consortium will invest €80 million in the project, and the first Tower should be finished in the last quarter of 2008. Also in partnership with ING Real Estate, Sonae Sierra has announced the refurbishment of Centro Colombo (Lisbon) - an investment of €31 million euros in renovation works to mark its 10th anniversary.
Finally, Sonae Sierra won this quarter the prestigious Elite Lombard Award in Italy, distinguishing the company's strategy in the Italian market.
Financial position and Results
Sonae Sierra obtained a consolidated Net Profit of €206.6 million in the first nine months of 2007, an increase of 33% on the same period of 2006.
The Direct Net Profit was €64.3 million (up 18%) and the Indirect Net Profit reached €142.3 million as a result of improved valuations and the value created in the centres inaugurated in the period.
Sonae Sierra's Net Asset Value (NAV) per share was 49.75 euros on September 30th 2007 versus 45.82 euros on December 31st 2006 - a growth of 8.6% on the nine months period.
Value Metrics
Up to now, we have emphasised the Net Asset Value as the key metric for the valuation of the Company. NAV is, of course, the key metric when valuing a portfolio of properties. The problem with this approach is that it does not cover the service activities undertaken by the Company, namely development, asset management and property management.
In the past, it could be argued that it was difficult to establish true arm's length prices since the services were rendered, in most cases, to Group companies. With the establishment of the Sierra Fund, that problem was solved.
The Sierra Fund has an obligation, under certain conditions, to acquire the properties developed by Sierra Developments at a price corresponding to Open Market Value and furthermore, Sierra companies deliver asset management and property management services to the Fund.
We believe that, with these conditions in place, the service activities of the Company (development, asset and property management) can now be valued independently of the valuation of the property portfolios held by the Company.
The tables below detail the main value metrics for the activities of the Company.
1. Net Asset Value
The first table shows the NAV of the three portfolios held by the Company: the properties in operation in Europe (Investments), the properties under development in Europe (Developments), and the properties held in Brazil. There is a residual amount corresponding to Cash plus other Assets and Liabilities associated with the other business activities. These portfolios are valued on the basis of open-market values as determined by an independent valuer.
These figures should constitute the basis for the valuation of the property portfolios held by the Company.
We are treating Cash as a separate asset, to be applied in the various businesses as the Company sees fit, depending on strategic decisions taken and on the opportunities that arise in the markets.
2. Net Operating Income
The second table shows the Net Operating Income generated by each service activity (development, asset management and property management).
The Developments' NOI, as shown in the Profit & Loss included in the Attachment, has two main components: (i) the operational activity related with the supply of development services to the Company's projects and (ii) the value added to projects during the development phase. To note that the valued added to projects are booked on an accrual basis as the development of the project progresses. This is not an IFRScompliant treatment, as under IFRS the valuation gains are booked, in full, on inauguration of the centre.
We book the gains in the Sierra Developments accounts, for management purposes, but in the consolidated accounts we book the gains only on inauguration, as per IFRS.
2007 year-to-date NOI reflects the significant number of projects under development in the period - some already inaugurated others to be inaugurated in 2008.
The Asset Management activity grew by 9% when compared with the same period of last year. The favourable variance relates with higher property valuations of the existing portfolio and an increase in the portfolio under management, due to the acquisitions and openings of the period.
Property Management shows a stable NOI, when compared with 2006. But this stability is the result of a significant increase in the Management Services Income (up 6%) that was compensated by an equally significant increase on the cost side (up 8%), mostly due to a reinforcement of the staff levels involved in this activity.
Sonae Sierra, www.sonaesierra.com, is an international shopping centre specialist, with a passion for bringing innovation and excitement to the shopping and leisure centre industry. The Company owns 47 Shopping Centres and 1 Retail Park in Portugal, Spain, Italy, Germany, Greece, Romania and Brazil, with a total Gross Lettable Area (GLA) of more than 1,8 million m2. Currently, Sonae Sierra is developing 11 more projects in Portugal, Spain, Germany, Greece and Brazil, with a total GLA of more than 400.000 m2. In 2006, its centres welcomed more than 402 million visits to its shopping centres.
Attached: Sonae Sierra's Consolidated Profit and Loss Account, Consolidated Balance Sheet and the Management Financial Statements by business (un-audited)
