Maia, Portugal, March 18th 2009
In 2008 Sonae Sierra recorded a Net Operating Margin of €179.9 million, a 16% growth compared to the same period of 2007
• Fifty Shopping centres in operation in seven countries
• Four new shopping centres inaugurated in Spain, Italy and Greece
• Sierra Portugal Fund successfully created, launched and placed
• Rents grew 17,0% and 4,1% on a like-for-like basis in Europe
• 7,2% like-for-like increase in rents in Brazil, with occupancy up by 10 b.p. to 96.8%
• Total Direct Income from Investments grew 13% over last year
• € 67.8 million of Direct Net Profit
• NAV stood at €1,416 million
Sonae Sierra has consolidated, during 2008, its expansion and internationalization strategy, and closed last year with a portfolio of 50 shopping centres in operation, spread throughout seven countries, with a total Gross Lettable Area (GLA) of about 2 million m².
Amongst the most significant moments of 2008 are: (i) the four inaugurations, Freccia Rossa in Brescia and Gli Orsi in Biella, both in Italy, Plaza Mayor Shopping in Spain and Phanteon Plaza in Greece; (ii) the completion of the expansion of ArrábidaShopping, in Porto, as well as the refurbishment of Centro Colombo, in Lisbon, both in Portugal, and Valecenter, near Venice in Italy; (iii) the successful launch and placement of the Sierra Portugal Fund with a total equity value of €300 million and (iv) the launch of three new projects in Brazil located in Londrina, Uberlândia and Goiânia.
During 2008, Sonae Sierra was awarded in several areas, namely the Green Thinker Award that elected the Company as most sustainable European developer among 100 leading companies in the sector. Sonae Sierra has also been distinguished by RLI magazine - Retail & Leisure International - with the "RLI Developer of the Year" award, at the Global RLI Awards 2008, the annual awards of this prestigious British publication.
Our Global Performance in 2008
Sonae Sierra's Consolidated Net Profit in 2008 was negative of €198.2 million compared with a positive consolidated net profit of €300.1 million in the same period of last year. This variation in Net Profits is mainly driven by Indirect Net Profits that were adversely affected by successive increases in market capitalization yields in Europe, particularly in Portugal and Spain.
The Total Direct Income from Investments grew by € 35.3 million or 13% over last year, from € 279.9 million to €315.2 million. This reflects the increase in portfolio resulting from the full year impact of 2007 acquisitions (CC Continente de Albufeira, CC Continente de Portimão, both in Portugal, Münster Arkaden, in Germany, and River Plaza, in Romania), the increase in the participations of three assets in Brazil (Shopping Metrópole, Plaza Sul Shopping and Tivoli Shopping), the inaugurations of 2007 (Alexa, in Germany, 8ª Avenida, in Portugal and El Rosal, in Spain), as well as, the inaugurations occurred in 2008 (Freccia Rossa and Gli Orsi, in Italy, Plaza Mayor Shopping, in Spain, and Pantheon Plaza, in Greece) and the organic growth of the existing portfolio. These favourable contributions more than compensated the loss of accounting Operating Income resulting from the change in consolidation method due to the successful sale of 58% of the new Sierra Portugal Fund (now consolidated by the proportional method, instead of the previously used full consolidation method).
Sonae Sierra's Direct Net Profit reached €67.8 million which compares with the €86.3 million in 2007. This reduction is explained by the increase in the net financial costs, which more than off-set the improvement in the net operating margin (which grew from 55,2% last year to 57,1% in 2008).
The big shift in the Company's Results happened at the level of Indirect Results, where the market variations of value of the properties are recorded. In this area, the Company booked a loss of €265.9 million at 2008 year end, whereas it had booked a gain of €213.8 million in the same period of 2007. This Indirect Result has three main components.
In the first (Gains Realized on sale of Investments), the Company shows a gain in the period of €19 million corresponding basically to the gains made on the sale of positions to third party investors in the Sierra Portugal Fund, the gain on sale of the Mediterranean Cosmos to Sierra Fund, the price adjustment in CascaiShopping, the gain on the sale of part of Manauara's land.
In the second component (Impairment & Development funds at risk provision), the Company recorded the impairments in the Romanian projects - Craiova and Ploiesti and the provision for developments at risk.
The third component (Value Created on Investments) corresponds to changes in value, on the basis of independent valuations, of the properties in the portfolio. In this component, the Company booked in the period a loss of €244.0 million.
The market value of the investment properties is being affected by the negative climate now prevailing in the property markets of most of the developed countries where the Company operates. This context led to an upwards shift of the capitalization yields applied in the valuations carried out on assets in those countries, this increase implying a reduction in the value of the corresponding property.
The losses in Value Created on Investments were mitigated however by the value created on openings of the year and on properties under developments and the valuation gains in Brazil, a market that was not affected by the crisis and where yields remain relatively stable.
In 2008 and in the case of Sonae Sierra, the exclusive effect of the variation in the yields led to a reduction in the value of the Investment Properties of 11.4%, which amounted to €410.9 million. The highest losses occurred in Portugal (loss of €183.8 million) and Spain (loss of €136.4 million), the other European countries had a total loss of €93.7 million whereas Brazil recorded a gain of €3.0 million.
In terms of yield variation in the portfolio, these figures translate an average yield increase of 56 basis points in Portugal, 95 basis points in Spain, and an average yield reduction in Brazil of 8 basis points.
This potential loss of €410.9 million, resulting from the increased yield, was mitigated by a favourable evolution at the Shopping Centres operating level. The combined effect of changes in the projections of rents, key money, other net income and capital expenditures, led to an increase in the value of the properties of €129.7million. Therefore, the net effect of the variation in the investment properties valuation was negative in €281.2 million.
To note that the negative variation of the Investment Properties results from unfavourable market forces and in no way reflect a general under performance of the company's European Shopping Centre portfolio which recorded a like-for-like 4.1% positive variation on rents versus 2007, with a stable occupancy, and a 7,2% like-for-like increase in rents in Brazil, where occupancy went up by 10 b.p. to 96.8%.
Our Performance in Brazil in 2008
2008 was a rewarding year for Sonae Sierra Brazil.
The Retail Operating Income increased by 16% to €40.5 million and the Income from Services Rendered increased by 22%, to €8.0 million in the period. The increase in operational and overhead costs were more than off-set by this outstanding performance in revenues, leading to a 8% increase of the Net Operating Income (NOI) to €28.6 million and a 6% increase of the Direct Profit to €21.3 million.
The increase in occupancy and collection rates through out our Brazilian portfolio and a better economic environment explain most of this excellent performance and the increase of the Direct Profit.
The Indirect Profit of the year, which mainly reflects the market variations of the properties value, was also positive in 2008. By the end of 2008, Brazil has been less negatively impacted by the turmoil in the world financial markets than other countries and the yields used in the valuations remained stable. Both the good operating performance of the whole portfolio and the reduction of the yield in Parque D.Pedro (our largest asset) led to better property valuations and to the positive Indirect Profit of €49.1 million in 2008.
By the end of 2008 and in development terms, we had succeeded in letting a total of 96% of the Gross Leasable Area (GLA) of our new Manauara Shopping Centre in Manaus. This 43,000 m2 centre is scheduled to open in April 2009. In 2008 we have also approved the development of 3 new centres in Londrina, Uberlândia and Goiânia cities. All three of these new developments have been given a good reception by Brazil's shopping centre anchor stores.
During the year we marked two other milestones achieving ISO 14001 environmental certification for all our operating shopping centres and for Manauara Shopping, which is still under construction. Two of our centres - Parque D. Pedro Shopping and Shopping Penha - also achieved OHSAS 18001 Safety and Health certification, making them unique in Brazil as the country's only shopping centres with this particular distinction.
Metrics of Value
The Company measures its performance, in a first instance, on the basis of changes in Net Asset Value (NAV) plus dividends distributed. The NAV presented is calculated following the INREV methodology, being (i) the addition of the estimated Promote Fee related with the Sierra Fund (the Fund will pay a fee to the fund manager, at the end of the life of the Fund, to remunerate the manager if the Fund achieves a superior performance) and (ii) the Transfer Taxes - valuation of the European portfolio on a gross basis (our independent valuer discounts from the OMVs a certain percentage related with transaction costs, which we are reversing for the calculation of the NAV) the main differences from the calculation published in previous years.
On the basis of this methodology, the NAV on 31 December 2008 of the properties attributable to Sonae Sierra was €1,416 million compared with €1,713 million on 31 December 2007.
Further to this, the Company uses a second set of value metrics, the Net Operating Income (NOI) generated by its service activities. In the full year of 2008, the figures for this second set of value metrics were:
The activities Asset Management and Property Management show a positive performance.
The Developments activity shows a loss of €157 million - this compares with a gain of €77 million in the same period of 2007. Under this activity, we book both project development services and margins accrued in projects under development held by Sierra Developments. The negative result in the period has to do with this second component. The Company adjusted down the estimates for value created until inauguration in a number of projects. As a consequence, the Company cancelled margins accrued in previous periods relating to those projects.
Sonae Sierra's Consolidated Profit and Loss Account, and Consolidated Balance Sheet
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Sonae Sierra's Consolidated Profit and Loss Account, and Consolidated Balance Sheet by business
Sonae Sierra, http://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 50 Shopping Centres in Portugal, Spain, Italy, Germany, Greece, Romania and Brazil, with a total Gross Lettable Area (GLA) of more than 2 million m2. Sonae Sierra has 14 projects under development and 11 new projects in different phases of completion in Portugal, Spain, Italy, Germany, Greece, Romania and Brazil with a total GLA of 1,2 million m2. In 2008, its centres welcomed more than 429 million visits.