31 12-2010 - 4 q10 earnings release


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31 12-2010 - 4 q10 earnings release

  1. 1. 4Q10 Earnings Release SONAE SIERRA BRASIL ANNOUNCESInvestors ADJUSTED EBITDA OF R$141.4Relations MILLION IN 2010, AN INCREASE OFCarlos Alberto Correa 42.1% OVER 2009Investors Relations Officer São Paulo, March 28, 2011 – Sonae Sierra Brasil S.A. (BM&FBovespa: SSBR3), one of Brazil’s leading shoppingMurilo Hyai mall developers, owners and managers, announces todayInvestors Relations Manager its results for the fourth quarter (4Q10) and full year of 2010. The financial and operating information outlinedEmail: below are based on amounts consolidated in accordanceribrasil@sonaesierra.com with accounting policies adopted in Brazil and in accordance with the International Financial Reporting Standards (IFRS)Phone:+55 (11) 3371-4188 issued by the International Accounting Standards Board - IASB, and correspond to the comparison of the results obtained in 2010 with the previous year, also adjusted to4Q10 CONFERENCE CALLS the new accounting standard.Portuguese HighlightsMarch 30, 2011  The Company’s Net Revenue increased 7.7% in the9 am (New York time) 4Q10 and 20.0% in 2010, totaling R$ 185.0 million.10 am (Brasilia Time)  Adjusted EBITDA had a significant increase of 19.4% inPhone: (55 11) 2188-0155 4Q10 and 42.1% in 2010, totaling R$ 141.4 million.Code: Sonae Sierra Brasil  The adjusted EBITDA Margin reached an impressiveEnglish level of 76.4% in 2010 compared to 64.6% in 2009.March 30, 201110.30 am (New York time)  Adjusted FFO increased by 30.7% in 4Q10 and 60.2% in 2010, reaching R$ 124.6 million.11.30 am (Brasilia Time)Phone: (1 412) 317-6776  The occupancy rate of our shopping malls reachedCode: Sonae Sierra Brasil 98.0% in 2010 compared to 97.2% in 2009.  Same-store sales (SSS) had a 9.5% growth in 2010.  Same-store rent (SSR) had a significant growth of 8.0% in 2010. 1
  2. 2. 4Q10 Earnings Release In November, we opened with great success the first expansion of Parque D. Pedro Shopping, which represented an increase of approximately 5.4 thousand sqm of GLA, bringing this shopping mall to a total of 121.0 thousand sqm of GLA, which already was one of the largest shopping malls not only in Brazil but also in all of Latin America. In February 2010, we began construction of Uberlândia Shopping in the city of Uberlândia (MG), and in September 2010 we started construction of Boulevard Londrina Shopping in Londrina (PR). These two new shopping malls should add approximately 91.4 thousand sqm of total GLA and 84.0 thousand sqm of owned GLA to our portfolio. In 2010 we also started the construction for the expansion of Shopping Metrópole.Financial Indicators(R$ million) 4Q10 4Q09 % 2010 2009 %Net Revenue 52.1 48.4 7.7% 185.0 154.1 20.0%EBITDA 41.1 32.9 25.1% 138.9 97.4 42.6%EBITDA Margin 78.8% 67.8% +1.099 bps 75.1% 63.2% +1.188 bpsAdjusted EBITDA 41.2 34.5 19.4% 141.4 99.5 42.1%Adjusted EBITDA Margin 79.0% 71.2% +780 bps 76.4% 64.6% +1.186 bpsFunds From Operations (FFO) 36.5 26.3 38.4% 122.1 75.7 61.3%FFO Margin 69.9% 54.4% +1.555 bps 66.0% 49.1% +1.688 bpsAdjusted FFO 36.6 28.0 30.7% 124.6 77.8 60.2%Adjusted FFO Margin 70.1% 57.8% +1.235 bps 67.3% 50.5% + 1.686 bpsNet Operating Income (NOI) 51.1 43.8 16.7% 167.4 128.3 30.5%Operating Indicators 4Q10 4Q09 % 2010 2009 %Total GLA (000 sqm) 350.1 343.5 1.9% 350.1 343.5 1.9%Owned GLA (000 sqm) 203.7 200.0 1.8% 203.7 200.0 1.8%Number of shopping malls 10 10 0.0% 10 10 0.0%Sales (R$ million) 1,119 982 14.0% 3,545 3,041 16.6%Sales/sqm (monthly average) 1,292 1,032 25.2% 904 832 8.7%Occupancy rate (eop) 98.0% 97.2% +77 bps 98.0% 97.2% +77 bpsCost of occupancy (% of sales) 8.1% 8.2% -0.1% 9.0% 9.0% 0.0%SSS/sqm 1,122 1,028 9.1% 902 824 9.5% SSS/sqm - Satellite stores 1,718 1,531 12.2% 1,447 1,303 11.1% SSS/sqm - Anchor stores 760 720 5.5% 643 596 7.9%SSR/sqm 61 55 9.5% 49 45 8.0% SSR/sqm - Satellite stores 121 111 8.9% 100 93 8.1% SSR/sqm - Anchor stores 23 21 11.4% 19 18 7.8%Overdue Payments (25 days) 2.0% 3.6% -151 bps 2.5% 4.4% -185 bps 2
  3. 3. 4Q10 Earnings ReleaseMESSAGE FROM MANAGEMENTIn 2010 Sonae Sierra Brasil maintained a strong trajectory of growth: consolidatednet revenues for the year totaled R$ 185.0 million, which represents a 20.0% increaseover 2009. Our adjusted consolidated EBITDA presented a significant growth of 42.1%in 2010 over 2009, reaching R$ 141.4 million, while the adjusted EBITDA marginreached 76.4%. The adjusted consolidated FFO totaled R$ 124.6 million in 2010,which was also a significant increase of 60.2% over 2009 with a margin of 67.4% onnet revenue. Our results in 2010 were largely a result of the performance of ourshopping malls especially with the contribution of the first full year of operations ofManauara Shopping in Manaus. Opened in April 2009, this shopping mall with 47.0thousand sqm of GLA, closed 2010 with 99.7% of its GLA occupied and it is alreadyone of the leading shopping malls of our portfolio. The net income attributed to theshareholders reached R$ 139.2 million in 2010, from R$ 152.4 million in 2009. Thisdecrease is mainly attributed to lower gain in investment properties in 2010 due tothe extraordinary gain in 2009 from the opening of Manauara Shopping, following thenew accounting standards (IFRS) adopted by the Company. In fact, if we disregardthe net of taxes impact of fair market value of the investment properties, the growthof net income would be significant.In terms of new developments, the Company continues to follow the plans previouslyannounced. In February 2010 we started the construction of Uberlândia Shopping andthe construction of Boulevard Londrina Shopping started in September. UberlândiaShopping, which is scheduled to open in the second half of this year, already had 77%of its GLA leased as of December 2010. Boulevard Londrina, with an opening datescheduled for the second half of 2012, had already signed leases representing 64% ofits GLA by the end of 2010. When completed, these two new projects will add about91.4 thousand sqm of total GLA and 84.0 thousand sqm of owned-GLA to ourportfolio. Also, in November 2010 we opened with great success the first expansionof Parque D. Pedro Shopping Mall, which represented an increase of approximately 5.4thousand sqm of GLA for this mall. It is noteworthy that this expansion opened with100% of its stores leased, which increased the total GLA of Parque D. Pedro to 121.0thousand sqm, reinforcing its position as one of the largest shopping malls not only inBrazil but in all of Latin America. Finally, construction for the expansions of MetrópoleShopping in the city of S. Bernardo do Campo in the greater metropolitan area of SãoPaulo started in the fourth quarter of 2010.According to the leverage strategy established for the development of new projects,the Company negotiated bank loans for the projects of Uberlândia and Londrina. Inthe first case a loan contract was signed with Banco Bradesco for R$ 81.2 million witha 15 year term (2 year grace period). A separate loan was contracted with Banco 3
  4. 4. 4Q10 Earnings ReleaseBradesco for the Boulevard Londrina Shopping of R$ 120.0 million also with a maturityof 15 years (2 year grace period).Also during this year the Company prepared for its IPO, which was successfullyconcluded by the listing of our shares on BM&F BOVESPA in the first quarter of 2011,raising a total of R$ 465.0 million. This transaction broadened our shareholder baseand provided the resources necessary to continue investing in our growth strategy.We remain confident in our strategy to develop market dominant shopping mallsprimarily focused on the middle class, which is a segment of population experiencingstrong growth and already represents the most significant portion of consumers in theCompanys current portfolio. To do so, we not only count on the experience gained byour management team at different levels, but also on the important contribution interms of expertise of our controlling shareholders Sonae Sierra SGPS and DevelopersDiversified Realty — two international specialists in the shopping mall industry with asolid reputation in their respective markets.Despite the outlook for the Brazilian economy pointing to a more modest scenariothan that seen in 2010, we remain optimistic in the Companys good performance in2011. Besides the prospect of maintaining good performance from the currentoperating properties, we also are forecasting the effects of the contribution resultingfrom the maturation of Manauara Shopping and the first expansion of Parque D.Pedro. Furthermore, we also will have the effects expected from the opening ofUberlândia Shopping as well as the contribution of expansions underway at ShoppingMetrópole and Shopping Campo Limpo, all of which we expect to open during thesecond half of the year.We also expect that during the current year the construction of Shopping Passeio dasÁguas will start in the city of Goiania. The planning and licensing phase of this projecthas been completed and is now in the pre-leasing process. Its opening is planned forthe year 2013.Finally, on behalf of the Management of Sonae Sierra Brasil we would like to thank allof our shareholders, employees, tenants, suppliers, banks and other partners for theircollaboration and the trust shown in us.The Management 4
  5. 5. 4Q10 Earnings ReleaseDESCRIPTION OF BUSINESSSonae Sierra Brasil S.A. is a company specialized in the shopping center business andcounts on the expertise of its management team and its international controllingshareholders: the European group Sonae Sierra and the U.S. company DevelopersDiversified Realty (NYSE: DDR), both companies that have deep experience in thedevelopment, ownership and management of shopping centers.We are one of the leading real estate developers, owners, and operators of shoppingmalls in Brazil. Through our integrated business model, we work with all phases of thebusiness, including development (which covers all stages of the selection of sites, thelicensing process, design and control of construction) as well as with the managementand leasing of properties, asset management, and marketing services.We hold a controlling interest in the majority of the shopping malls in our portfolio andmanage all of them. On December 31, 2010, we had a weighted average ownershipinterest of 58.2% in the ten operating shopping malls in our portfolio, representing203.7 thousand sqm of owned GLA and control in terms of ownership of six of the tenshopping malls. We estimate approximately 100.9 million visits to our malls in 2010and 92.6 million visits during the year of 2009.OUR PORTFOLIOOur portfolio is comprised of ten shopping malls in operation as follows: (i) eightshopping malls located in the state of São Paulo, which is the most prosperous andeconomically developed state of Brazil; (ii) one shopping mall located in Brasília,Federal District; and (iii) one shopping mall located in the city of Manaus, the capitalof the state of Amazonas and the largest population density in the state and in thenorth region of Brazil. Our portfolio includes some of the most prominent shoppingmalls in operation in Brazil. For example, Parque D. Pedro Shopping, located in thecity of Campinas, has 121.0 thousand sqm of GLA and is one of the largest shoppingmalls in Brazil in terms of GLA according to data provided by ABRASCE. Parque D.Pedro had its area increased with the opening of its first expansion of 5.4 thousandsqm of GLA in November 2010.Additionally, we are in the process of building three new shopping malls in threemajor cities in Brazil: (i) Uberlândia, the second most populous city in the state ofMinas Gerais; (ii) Londrina, the second largest city in the state of Paraná; and (iii)Goiania, the state capital of Goiás. These three cities are important centers for theagribusiness and services sectors which have experienced strong demographic andeconomic growth. The selection of these cities for building new shopping malls fits into 5
  6. 6. 4Q10 Earnings Releaseour preferred strategy of growth through potentially market dominant shopping malls,and they meet our requirement in terms of per capita income and population density.We estimate that the combined GLA from these three shopping malls is approximately170.0 thousand sqm.The map below shows the location of our Brazilian malls. All figures related to GLAand the Company’s interests are based on positions at the close of 2010, exceptwhere indicated otherwise: 10 7 4 13 11 5 1 8 3 9 12 2 6 Shopping Centers in Operation GLA Owned GLA Occupancy City State Stores (000 sqm) Ownership (000 sqm) Rate 1 Parque D. Pedro Campinas SP 406 121.0 51.0% 61.7 (% GLA) 95.2% 2 Boavista Shopping São Paulo SP 148 16.0 100.0% 16.0 98.6% 3 Penha Shopping São Paulo SP 198 29.6 73.2% 21.7 99.5% 4 Franca Shopping Franca SP 101 18.1 67.4% 12.2 100.0% 5 Tivoli Shopping Santa Barbara dOeste SP 147 22.1 30.0% 6.6 100.0% 6 Metrópole Shopping São Bernardo do Campo SP 152 25.0 * 100.0% 25.0 99.3% 7 Pátio Brasil Brasília DF 235 28.8 10.4% 3.0 98.7% 8 Plaza Sul Shopping São Paulo SP 217 23.1 30.0% 6.9 99.9% 9 Campo Limpo Shopping São Paulo SP 127 19.9 20.0% 4.0 99.9%10 Manauara Shopping Manaus AM 235 46.7 100.0% 46.7 99.7% Total 1,966 350.1 58.2% 203.7 98.0% * Including an area of 5,161 sqm, currently reserved for expansion of the shopping mall Projects under Development GLA City State (000 sqm) Ownership Projected Opening11 Uberlândia Shopping Uberlândia MG 43.6 100.0% 2H1112 Boulevard Londrina Shopping Londrina PR 47.8 84.5% 2H1213 Passeio das Águas Shopping Goiânia GO 78.1 100.0% 2013 6
  7. 7. 4Q10 Earnings ReleaseCORPORATE STRUCTUREThe organizational chart below shows the simplified structure of our companies andShopping Malls on December 31, 2010: 100,0% 100% Unishopping Administradora Sierra Investimentos 100,0% Brasil Ltda. Unishopping Consultoria 60,0% 100% 100% 100,0% 100,0% 100,0% 20,0% 100,0% 100,0% 100,0% 100,0% FII Shopping Pátio Pátio Penha Pátio Sierra Pátio São Campo Pátio Pátio Pátio Pátio Goiânia Parque D. Boavista Shopping Campinas Enplanta Bernardo Limpo Emp. Londrina Uberlândia Sertório Ltda. Ltda. Pedro Ltda. Ltda. Shopping Ltda. Ltda. E Part. Ltda. Ltda. Ltda. 100,0% 73,2% 10,4% 67,4% 30,0% 100,0% 100,0% 85,0% 100,0% 30,0% 84,5% 100,0% 100,0% Passeio das Águas (Goiânia) Under development Non operating as of the date of this documentOUR STRATEGYOur strategy focuses on profitably increasing our portfolio and maintaining ourposition as one of the leading developers, owners, and managers of shopping malls inBrazil, seeking to provide superior returns to our shareholders in a sustainable andresponsible way. We intend to achieve our goals by implementing the followingstrategies: 7
  8. 8. 4Q10 Earnings ReleaseFocus on creating value through organic growth. Our growth strategy is basedon two main sources: (i) the first represents building new market dominant shoppingmalls that are able to establish and maintain a solid competitive position based oncertain factors such as population density, purchasing power of the potentialcustomers, and unserved consumer demand; and (ii) the second is related to theexpansion and/or remodeling of existing shopping malls by including new tenants,features and attributes in order to increase their market share.Acquisition of additional stakes in the properties of our portfolio. We plan onanalyzing opportunistic acquisitions at reasonable prices of additional ownershipinterests in the shopping malls already part of our portfolio. In parallel, and wheneveropportunities arise that fit our strategy, we will analyze potential acquisitions atattractive pricing of controlling interests in shopping malls that are not part of ourportfolio, or at least a strategic shareholding to possibly allow us to eventually acquirecontrol and to ensure that we control the management of the property. Parque D. Pedro Food Court Manauara ShoppingECONOMIC SCENARIOThe macroeconomic scenario in 2010 provided very favorable conditions for thegrowth of retailing in Brazil, as well as our Company.Brazils GDP increased significantly in 2010 with a growth of 7.5% over 2009 drivenlargely by the growing consumption of the middle class. The volume of retail salesshowed a significant growth of 10.9% in 2010 while nominal sales increased by14.5%. The sales recorded by retailers present in our malls grew even more, showingan increase of 16.6% in 2010 over sales in 2009. The unemployment rate of theeconomically active population measured by IBGE was 5.3% at the end of 2010, thelowest level recorded since the beginning of this studys publication in March 2002,while real average earnings for 2010 increased by 5.9% in comparison with 2009.This growth, however, has placed pressure on consumer prices with inflation reaching5.9% in 2010 against 4.3% in 2009, forcing the Central Bank to take a more 8
  9. 9. 4Q10 Earnings Releaserestrictive stance and raise the SELIC interest rate from 8.75% to 10.75% at the endof 2010.We believe that, despite signs pointing to an increase in inflation, the economicscenario should continue providing favorable conditions for the growth of nationalretail sales, as well as our activities.EFFECTS OF THE INITIAL ADOPTION OF IFRSSonae Sierra Brasil prepared its consolidated financial statements in accordance withinternational financial reporting standards (IFRS) issued by the InternationalAccounting Standards Board - IASB. It should be pointed out that during the years2009 and 2010, Comissão de Valores Mobiliários (CVM) approved several technicalpronouncements, interpretations, and technical orientations issued by the Comitê dePronuncimantos Contábies (CPC) that amended certain accounting policies previouslyadopted in Brazil, effective beginning January 1, 2010 and retroactive to January 1,2009 (transition date) for comparison purposes. The financial statements for the yearended December 31, 2010 were prepared in accordance with the policies approved byCVM and the financial statements for the year ended December 31, 2009 and openingbalances as at January 1, 2009 were adjusted and reclassified in order to consider theapplication of these policies to provide a consistent comparative presentation.The Company presents below the main effects and adjustments made in accordancewith the new accounting pronouncements affecting the Company’s financialstatements:Investment Properties - CPC 28Under CPC 28, properties held to earn rentals or for capital appreciation or both canbe recognized as investment property. Investment property was initially measured atcost. The Company’s management decided to adopt the fair value method to reflect itsbusiness.The measurement of fair value of our properties is made on a quarterly basis, and isreported in our quarterly financial statements.The fair value of each investment property in operation and in development wasdetermined based on a discounted cash flow valuation prepared by an independentexternal appraiser (Cushman & Wakefield). 9
  10. 10. 4Q10 Earnings ReleaseSome of the main assumptions for the valuation were:  10 year projection;  Perpetuity calculation at year 11;  10-year discount rate ranging from 12.75% to 14.00% (depending on the asset);  Exit yield ranging from 8.25% to 9.50% (depending on the asset);  0.0% real growth rate assumed for perpetuity;Based on this valuation analysis, the fair value of our investment properties totaled R$2.2 billion as of December 31, 2010.For further details, please refer to our 2010 Financial Statements, note 11.Reversal of net deferred charges and prepaid commissions - CPC 37In accordance with the instructions for the initial adoption of the IFRS the Companyeliminated deferred charges and the amortization of deferred charges from the incomestatement. In addition, prepaid commission expenses, which were previously recordedin the assets, were reverted and the full expense is now in the income statements inthe year the cost was incurred. For more details of the impacts of the IFRSadjustments please see our 2010 Financial Statements, note 4. 10
  11. 11. 4Q10 Earnings ReleaseFINANCIAL HIGHLIGHTSGross RevenueSonae Sierra Brasil’s gross revenue totaled R$ 57.3 million in 4Q10, an increase of8.7% over the same period of the previous year. In 2010, gross revenues for the yearreached R$201.6 million, 19.4% higher than 2009. The increase in revenue wasdriven by growth in rental revenue mainly attributed to the first full year of operationsof Manauara Shopping, which was opened in April 2009, and by rental contractadjustments for the other properties in our portfolio. Another factor that contributedto the growth in revenue of 2010 was the significant increase in revenue fromparking, which totaled R$ 16.6 million in 2010, 150.2% more than 2009, mainly dueto the introduction of parking charges at Parque D. Pedro in September 2009 and atManauara in the middle of 2010. Gross Revenue Breakdown 2009 2010 6% 1% 5% 8% Rent 4% 8% Service revenue 11% Parking revenue Key Money 78% 79% Other revenueGross Revenue (R$ 000)(R$ thousand) 4Q10 4Q09 % 2010 2009 %Rent 45,411 41,484 9.5% 158,246 132,370 19.5%Service revenue 2,996 4,576 -34.5% 15,530 18,390 -15.6%Parking revenue 5,773 3,383 70.6% 16,629 6,645 150.2%Key Money 2,719 2,289 18.8% 10,399 9,232 12.6%Other revenue 424 1,005 -57.8% 808 2,186 -63.0%Total 57,323 52,737 8.7% 201,612 168,823 19.4% 11
  12. 12. 4Q10 Earnings ReleaseCost and ExpensesCosts and expenses totaled R$ 12.2 million in 4Q10, a 19.6% decrease from 4Q09. In2010, Cost and Expenses for the year totaled R$ 50.7 million, 9.3% lower than 2009.This reduction can be attributed mainly to a decrease in personnel costs, which totaledR$ 16.1 million in 2010, 18.3% less than in 2009, as a result of lower commissionspaid to real estate brokers, in addition to non-recurring severance costs incurred in2009 relating to former members of senior management.It worth noting that occupancy costs (vacant stores) fell by R$1.8 million, or 30.2%,to R$4.1 million in 2010, due to higher occupancy, particularly in Manauara, Penha,Franca Boavista and Parque D. Pedro.Expenses (R$ 000) 4Q10 4Q09 % 2010 2009 %Depreciation and 378 332 13.9% 1,210 1,206 0.3%amortizationPersonnel 4,554 7,226 -37.0% 16,075 19,676 -18.3%Outsourced services 1,882 59 3089.8% 9,829 6,906 42.3%Occupancy cost (vacant 856 1,275 -32.9% 4,070 5,828 -30.2%stores)Cost of contractual 514 587 -12.4% 1,873 2,340 -20.0%agreements with tenantsReversal of the allowancefor doubtful lease (461) (234) 97.0% (2,171) (99) 2092.9%receivablesOther 4,477 5,929 -24.5% 19,815 20,018 -1.0%Total 12,200 15,174 -19.6% 50,701 55,875 -9.3%Classified as:Cost of rentals and services 7,643 11,491 -33.5% 34,738 41,761 -16.8%Operating expenses 4,557 3,683 23.7% 15,963 14,114 13.1% 12,200 15,174 -19.6% 50,701 55,875 -9.3%Changes in Fair Value of Investment PropertiesIn December 2010, Sonae Sierra Brasil adopted the IFRS, under which, the Companyopted to value its investment properties at fair value. Thus, the gains and lossesresulting from changes in fair market value of the properties are recorded in theChange in Fair Value of Investment Properties account, which totaled R$ 68.7 millionin 4Q10 and R$ 142.7 million for the year 2010 compared to R$ 226.7 million in 2009.The reduction in 2010 when compared to 2009 is due primarily to the extraordinarygain recognized in 2009 with the opening of Manauara Shopping. 12
  13. 13. 4Q10 Earnings ReleaseOther Net Operating RevenueOther net operating revenue totaled R$ 585.0 thousand in 4Q10 and R$ 4.2 million in2010, which is largely a result of the receipt of R$ 2.5 million for the minimum yieldguaranty paid by the real estate investment fund, FII Parque D. Pedro ShoppingCenter, to quota holders.Net Financial ResultThe consolidated financial result in 4Q10 was a net financial income of R$ 268.0thousand and a net financial expense of R$ 4.4 million for the year 2010, a substantialimprovement over the R$ 11.9 million expense recorded in 2009, primarily driven bypositive exchange rate variations related to the loan with the parent company, SierraBrazil 1 BV.Net IncomeNet Income totaled R$ 46.1 million in 4Q10, a 6.3% increase over 4Q09 and R$ 139.2million for the year 2010 versus R$ 152.4 million in 2009. It is worth noting, however,that the Net Income is largely influenced by the Change in Fair Value of InvestmentProperties and in 2009 there was the extraordinary gain related to the opening ofManauara Shopping.Net Operating Income (NOI)Consolidated NOI, considering 100% of Parque D. Pedro’s NOI and weighted by SonaeSierra Brasil’s ownership in the other operating malls totaled R$ 51.1 million in 4Q10,a 16.7% increase over 4Q09. In the year 2010, Consolidated NOI reached R$ 167.4million in 2010, a 30.4% increase over 2009.Net Operating Income - NOI (R$ million) 4Q10 4Q09 % 2010 2009 %Rent 45.4 41.5 9.5% 158.2 132.4 19.5%Key Money 2.7 2.3 17.4% 10.4 9.2 12.6%Parking 5.7 3.3 72.7% 16.6 6.6 150.2%Other Revenues 0.4 1.0 0.0% 0.8 2.2 -63.0%Total Revenues 54.2 48.1 12.8% 186.1 150.4 23.7%(-) Malls Operating Expenses 3.1 4.3 -27.6% 18.7 22.1 -15.5%NOI 51.1 43.8 16.7% 167.4 128.3 30.4% 13
  14. 14. 4Q10 Earnings ReleaseAdjusted EBITDAAdjusted EBITDA (adjusted for non-recurring expenses) increased by 19.4% in 4Q10to R$ 41.2 million and 42.1% for the year 2010 reaching R$ 141.4 million, while theAdjusted EBITDA margin reached 76.4% in 2010, compared to 64.6% in 2009. Adjusted EBITDA (R$ million) 42.1% 19.4% 141.4 99.5 34.5 41.2 4Q09 4Q10 2009 2010Adjusted Funds From Operations (FFO)Adjusted FFO (adjusted for non-recurring expenses) totaled R$ 36.6 million in 4Q10and R$ 124.6 million in 2010, an increase of 60.2% over 2009 with a margin of67.4% over net revenue in 2010, compared to 50.5% in 2009. Adjusted FFO (R$ million) 60.2% 30.7% 124.6 77.8 28.0 36.6 4Q09 4Q10 2009 2010The reconciliation of the operating income before financial results with the EBITDA,adjusted EBITDA, FFO, and Adjusted FFO is shown below: 14
  15. 15. 4Q10 Earnings ReleaseAdjusted EBITDA andAdjusted FFO Reconciliation(R$ million) 4Q10 4Q09 % 2010 2009 %Net Revenue 52,1 48,4 7,7% 185,0 154,1 20,0%Operating income before 109,7 99,0 10,8% 282,0 325,0 -13,2%financial resultDepreciation and amortization 0,4 0,3 13,8% 1,2 1,2 0,0%Gain from fair value of investment (69,0) (66,5) 3,8% (144,3) (228,8) -36,9%propertiesEBITDA 41,1 32,9 25,1% 138,9 97,4 42,6%Non-recurring expenses 0,1 1,6 -93,5% 2,5 2,1 19,0%Adjusted EBITDA 41,2 34,5 19,4% 141,4 99,5 42,1%EBITDA Margim 78,8% 67,8% +1,099 bps 75,1% 63,2% +1.188 bpsAdjusted EBITDA Margin 79,0% 71,2% +780 bps 76,4% 64,6% +1.186 bpsEBITDA 41,1 32,9 25,1% 138,9 97,4 42,6%Net financial result 0,3 (2,6) -110,4% (4,4) (11,9) -63,0%Current income and social (4,9) (3,9) 24,8% (12,4) (9,8) 26,5%contribution taxes - -FFO 36,5 26,3 38,4% 122,1 75,7 61,3%Non-recurring expenses 0,1 1,6 -94% 2,5 2,1 19,0%Adjusted FFO 36,6 28,0 30,7% 124,6 77,8 60,2%FFO Margin 69,9% 54,4% + 1.555 bps 66,0% 49,1% +1.688 bpsAdjusted FFO Margin 70,1% 57,8% +1.235 bps 67,4% 50,5% +1.686 bpsCash and Cash Equivalents and DebtCash and cash equivalents, which comprises cash, banks and financial investments,declined by R$ 24.7 million, from R$ 86.3 million on December 31, 2009 to R$ 61.6million on December 31, 2010. The main transactions impacting cash and cashequivalents were (i) new loans totaling R$ 77.3 million and the settlement of R$59.0million; and (ii) the cash investments in properties in the amount of R$118.0 million,basically due to the construction and renovation of the Company’s malls. Theremaining net variations were chiefly related to operating results in 2010. 15
  16. 16. 4Q10 Earnings Release Bank Loans Debt Amortization Schedule (R$ million) 104.3 27.1 27.1 26.4 7.2 9.7 2011 2012 2013 2014 2015 2016 and onConsidering the profile of our debt, our cash flow, retained earnings, the proceedsfrom the companys IPO in 2011, and our liquidity position, we believe that we are ina comfortable situation in terms of capital resources that are sufficient to cover ourinvestment plan, expenses, debts, and other amounts to be paid in the coming years.SHOPPING CENTERS’ SALES PERFORMANCESales in the Company’s malls totaled R$ 1,119 million in 4Q10, a 14.0% increase overthe same period in 2009, and R$3,545 million for the year 2010, 16.6% higher than in2009.The best performing malls were Manauara Shopping, Franca Shopping, BoavistaShopping and Penha Shopping, with respective sales growth of 97.5%, 22.5%, 18.1%and 16.9%. The excellent growth recorded by the Manauara mall was partially due to2010 being its first full year of operations, but also reflected its accelerated maturity,while the strong performance of Franca Shopping, Boavista Shopping and PenhaShopping reflected the reduction in their vacancy rates over the previous year.OPERATING HIGHLIGHTSThe operating income of Sonae Sierra Brasil in 2010 reflects the growth trend of theCompany before a very favorable period for retail and the Brazilian shopping mallssector. At the end of 2010, the occupancy rate in our shopping centers reached 98.0%of the GLA, compared to 97.2% at the end of 2009. The same-store sales (SSS)recorded a growth of 9.5% during the period, while the same-store rent (SSR)recorded an increase of 8.0%. 16
  17. 17. 4Q10 Earnings ReleaseOccupancy Rate Occupancy (% GLA) 98.3% 98.5% 98.4% 98.0% 97.3% 97.2% 97.0% 96.3% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10Same Store Sales and Same Store Rent SSS/sqm SSR/sqm 9.1% 9.5% 9.5% 8.0% 1,122 1,028 61 824 902 55 45 49 4Q09 4Q10 2009 2010 4Q09 4Q10 2009 2010ONGOING PROJECTSSonae Sierra Brasil currently has eight ongoing projects, comprised of three greenfieldprojects and five expansions, which should increase owned GLA by approximately92% to 392.0 thousand sqm by 2013. It is worth noting that this substantial growthincludes only those projects already in our pipeline and excludes future projects yet tobe announced. 17
  18. 18. 4Q10 Earnings Release Owned GLA Growth (000 sqm) Goiânia Greenfields Expansion Londrina 78 Uberlândia 13 40 3 Metrópole (II) 44 Tívoli 10 PDP (II) 392 Metrópole (I) Campo Limpo 204 +92% 2010 2011 2012 2013 TotalNEW PROJECTS (GREENFIELD)Sonae Sierra Brasil’s strategy is to develop greenfield projects that have the potentialto become the leading malls in their regions. Based on this strategy, we have threesuch projects in our portfolio. Construction on two of these – Uberlândia Shopping andBoulevard Londrina Shopping – is already under way and a high percentage of leasingcontracts have already been signed (77% and 64% of GLA, respectively).Construction of the third mall, Passeio das Águas Shopping (in Goiânia), is scheduledto begin in 2011.Uberlândia Shopping: Construction of this mall, located in Uberlândia, Minas Gerais,began in February 2010 and opening is scheduled for the second half of 2011.Approximately 77% of GLA was already leased as of December 31, 2010. Uberlândia Shopping City Uberlândia State MG Expected Opening 2H11 GLA (‘000 sqm) 43.6 SSB’s ownership 100% Contracted GLA 77% Uberlândia Shopping Project Illustration 18
  19. 19. 4Q10 Earnings ReleaseBoulevard Londrina Shopping: Located in Londrina, the second largest city in thestate of Paraná, Boulevard Londrina Shopping began construction in September 2010,and is scheduled to open in the second half of 2012. The mall’s GLA was already 64%leased as of December 31, 2010. Boulevard Londrina Shopping City Londrina State PR Expected Opening 2H12 GLA (‘000 sqm) 47.8 SSB’s ownership 84.5% Contracted GLA 64% Boulevard Londrina Project IllustrationPasseio das Águas Shopping: Construction of Passeio das Águas Shopping, locatedin Goiânia, the capital and most important city of Goiás state, will begin in 2011, withinauguration scheduled for 2013. Passeio das Águas Shopping City Goiânia State GO Expected Opening 2013 GLA (‘000 sqm) 78.1 SSB’s ownership 100% Contracted GLA 20%Passeio das Águas Project Illustration 19
  20. 20. 4Q10 Earnings ReleaseEXPANSIONSExpansion of Parque D. Pedro ShoppingAlthough we believe Parque D. Pedro Shopping to be Brazil’s largest mall in terms ofcontiguous GLA, we decided to expand it to meet growing demand. The expansionwas planned in two phases in distinct areas of the mall, the first of which opened onNovember 3, 2010 and the second is scheduled for inauguration at the end of 2012.The first expansion added approximately 8.0 thousand sqm of built-up area and 5.4thousand sqm of GLA, with 32 satellite stores and two anchor stores. The new spacewas designed for stores focusing on fashion, further strengthening the mall’s storemix with brands such as Nike, Adidas, L’Occitane, Siberian, Crawford, Ecko Unltd andconsumer electronic retailer Fast Shop. We believe the new mix will increase ParqueD. Pedro Shopping’s competitive advantages in the region, offering new purchasingoptions and strengthening our image, especially with consumers in the upper andupper-middle income groups.The second phase should add 8.0 thousand sqm of built-up area and approximately5.4 thousand sqm of GLA.We have received all the necessary approvals for the Parque D. Pedro Shoppingexpansions.Internal view of Expansion Aerial View of Parque D. Pedro and Expansion 20
  21. 21. 4Q10 Earnings ReleaseExpansion and renovation of Shopping Metrópole – Phase I We are currently renovating and expanding Metrópole Shopping, given growing numbers of visitors, which we expect to increase even further with the addition of several high-end commercial and residential towers adjacent to the mall being developed by other companiesMetrópole Project Illustration Metrópole Expansion Construction SiteCampo Limpo ExpansionIn early 2011, the Company also started the construction of the expansion ofShopping Campo Limpo. The strong performance of this mall has mainly been fueledby increased consumption of the lower income groups. The mall had an occupancyrate of 99.9% as of December 31, 2010. The expansion, which is scheduled to open inthe second half of 2011, will add 2.5 thousand sqm of GLA.Future ExpansionsWe plan to expand Tivoli Shopping due to its exceptionally healthy performance interms of revenue and occupancy. We therefore believe it is capable of supporting anexpansion of approximately 6.6 thousand sqm of GLA by the end of 2013.In addition, we also plan to start construction for the second expansion of Parque D.Pedro and for the second expansion in Metrópole in 2012. The second expansion ofParque D. Pedro is expected to add 5.4 thousand sqm and should be opened by theend of 2012 and the second expansion of Metrópole is expected to add 12.0 thousandsqm and should be opened by the end of 2013. 21
  22. 22. 4Q10 Earnings ReleaseREINVESTMENT OF PROFITS AND DIVIDEND PAYMENTPOLICYIn accordance with Brazilian Corporate Law, it is the responsibility of our shareholdersto establish at the Annual General Meeting (AGM) the allocation of our net income forthe year end and the distribution of dividends from the preceding fiscal year.According to the Company’s bylaws, shareholders are entitled to a minimumcompulsory dividend of 25% of net income, adjusted according to BrazilianCorporation Law.Retained EarningsRetained earnings, which correspond to the profits remaining after the allocation ofthe legal reserve and the reserve of unrealized profits and the distribution ofdividends, has as its main objective to meet capital investment plans for expansion,modernization and maintenance of the shopping malls in operation and to develop ourshopping centers projects. For the year end December 31, 2010 the Board ofDirectors will propose to the Annual General Meeting of Shareholders the amount ofR$ 99,175 thousand in retained earnings.Dividend distributionAccording to the Company’s bylaws, shareholders are entitled to a minimumcompulsory dividend of 25% of net income adjusted according to Brazilian CorporationLaw. These dividends were recorded on December 31, 2010, as shown below:Dividend distribution 12/31/2010 (R$ thousand)Net income for the year (a) 139,194Legal reserve (5%) (6,960)Dividend Calculation Basis 132,234Minimum compulsory dividends - 25% before the formation of Reserve of 33,059Unrealized Profits (b)Unrealized profits -Equity in earnings (136,255)Unearned income (c) (136,255)Profit achieved in the year, corresponding to the compulsory minimum 2,939dividends payable (a) - (c) = (d)Formation of reserve of unrealized profits (b) - (d) 30,120 22
  23. 23. 4Q10 Earnings ReleaseFor year ended December 31, 2010, the compulsory minimum dividends totaledR$ 2,939 thousand and the Board of Directors will propose to the Annual GeneralMeeting of Shareholders this amount to be distributed.SERVICES OF INDEPENDENT AUDITORS - IN COMPLIANCEWITH CVM INSTRUCTION No. 381/2003The policies of the Company and its subsidiaries adopted in relation to hiring theservices of independent auditors have the purpose of ensuring that there is no conflictof interest and/or loss of independence or objectivity of the auditors.During the year ended December 31, 2010, the Companys independent auditors,Deloitte Touche Tohmatsu, were hired for additional services to examine the financialstatements. These additional services relate to the process of the public offering anddistribution of the Companys primary shares and the respective fees totaled R$453,000.HUMAN RESOURCESOn December 31, 2010, our wholly owned subsidiaries, Unishopping AdministradoraLtda. Unishopping Consultoria Ltda., and Sierra Investimentos Ltda., had 146employees (127 on December 31, 2009).We grant the following benefits to all our employees: health insurance, life insurance,and personal injury insurance. Beyond these benefits, managers and directors areprovided with benefits relating to auto and fuel costs. Benefits are granted based onfunctional groups and are provided in accordance with our compensation policies.We are registered in PAT (Worker’s Meal Program) and offer food vouchers for all ouremployees.We do not have an incentive compensation policy based on shares. However,employees are eligible to receive short-term variable compensation based onachieving individual KPIs. Executive officers are also entitled to long-termcompensation. 23
  24. 24. 4Q10 Earnings ReleaseENVIRONMENTAL SUSTAINABILITYActivities related to the shopping mall segment in Brazil are subject to regulations andlicensing requirements as well as federal, state, and city environmental control. Theprocedure for obtaining environmental licensing is necessary both for the initialdevelopment and construction stages of each property as well as for any expansion ofthe shopping centers, and the licenses granted must be periodically renewed.In this sense we can affirm that we maintain high standards of environmental andcorporate responsibility as part of our goal to maintain sustainable development. Wehave adopted environmental policies and practices that benefit the environment morethan those required by existing regulations that apply to us.It should be made clear that we have been pioneers in developing new concepts ofsafety systems and environmental practices. The Company also has received the ISO14001:2004 certification in recognition of its management of environmental issues inall the shopping malls in operation in our portfolio. Additionally, Parque D. PedroShopping and Shopping Penha received the OHSAS 18001:2007 certification inoccupational health and safety in October 2008 and December 2009 respectively.Shopping Plaza Sul was also recommended for OHSAS 18001.SUBSEQUENT EVENTSReverse split of sharesThe Extraordinary General Meeting of shareholders held on January 11, 2011approved the reverse split of the common shares issued by the Company in theproportion of 10 shares for 1 share of its kind, reducing the number of commonshares from 531,727,887 to 53,172,788, which were distributed among shareholdersin the same proportion owned by each of them prior to the reverse split. TheCompanys capital was maintained at R$ 532.8 million.Capital increaseOn February 7, 2011, the Companys Board of Directors approved the capital increase,which is still within the limit of authorized capital, from R$ 532.8 million to R$ 967.6million, which is an increase of R$ 434.8 million done by subscribing and paying21,739,130 common shares issued by the Company still under the primary publicdistribution of shares at a subscription price of R$ 20.00 (twenty reais) per shareaccording to the Final Public Offering Memorandum of Primary Distribution of Common 24
  25. 25. 4Q10 Earnings ReleaseShares issued by Sonae Sierra Brasil S.A. ("Final Offering Memorandum"), as recordedin the Brazilian Securities and Exchange Commission ("CVM").On March 4, 2011, the Companys Board of Directors approved the capital increase,which is still within the limit of authorized capital, from R$ 967.6 million to R$ 997.8million, which is an increase of R$ 30.2 million done by subscribing and paying1,511,913 common shares issued by the Company still under the primary publicdistribution of shares due to the partial exercise of the Over-Allotment Option by theLead Manager in accordance with the provisions of the Underwriting Agreement,Placement and Firm Guarantee Payment of Common Shares issued by Sonae SierraBrasil S.A. ("Underwriting Agreement") entered into on February 1, 2011 at thesubscription price of R$ 20.00 (twenty reais) per share.Construction LoanOn January 15, 2011 the subsidiary Pátio Londrina Shopping Ltda. signed with BancoBradesco S.A. a contract to finance the construction of Shopping Londrina. This loanof up to R$ 120 million has a fixed rate pegged to the Referential Rate - TR plus10.90% per annum. The contract term is 15 years with a grace period of two years forthe portion of interest. After this period, the balance due is payable in up to 156successive monthly installments. The loan is secured by a mortgage lien on theshopping malls property. The Company is the guarantor of this operation.Settlement of the loan agreement with the associated company Sierra Brazil1 BVOn February 8, 2011, the Company settled the debtor loan agreement with theassociated company Sierra Brazil 1 BV (the Companys majority shareholder),amounting to R$ 76.2 million. The payment for this loan was already planned as partof the disposition of resources from the Companys initial public offering as describedin the Final Public Offering Memorandum dated February 01, 2011. 25
  26. 26. 4Q10 Earnings ReleaseGLOSSARYGLA (Gross Leasable Area): Equivalent to the sum total of all the areas availablefor leasing in the shopping malls.ABRASCE: Brazilian Shopping Mall Association.BM&FBOVESPA: BM&FBovespa S.A. - Securities, Commodities and FuturesExchange.CSLL: Social contribution tax on net income.EBITDA: Operating income before financial result + depreciation and amortization -gain from fair value of investment propertiesAdjusted EBITDA: EBITDA adjusted for the effects of non-recurring expenses effectFFO (Funds from Operations): EBITDA +/- Net financial result – current incomeand social contribution taxesAdjusted FFO: FFO adjusted for the effects of non-recurring expenses.IFRS: International Financial Reporting Standards.IGP-M: General Market Price Index, published by the FGV.IPCA: Consumer Price Index, published by the IBGE.Anchor Store or Large Anchors: Well-known stores with special marketing andstructural features that serve to attract consumers, assuring continuous visitor flowsand uniform traffic in all areas of the mall.Satellite Stores or Satellites: Small stores without special marketing or structuralfeatures located around the anchor stores and aimed at general commerce.NOI (Net Operating Income): Gross revenue from malls (excluding servicerevenue) + parking revenue – mall operating expenses – provisions for doubtfulaccounts.Novo Mercado: A special listing segment of the BM&FBOVESPA with special corporategovernance rules determined by the Novo Mercado Regulations.Shopping Mall: A shopping and entertainment center that unites businesses from adiversified range of retail and service segments in a single site. Malls are subject torigorous planning following careful studies of the consumption potential of the areathey are intended to influence and serve.SSR (same-store rent): Relation between invoiced rent for the same operation inthe current period compared to previous period. 26
  27. 27. 4Q10 Earnings ReleaseSSS (same-store sales): Relation between sales for the same tenant in the currentperiod compared to the previous period.Occupancy Rate: Ratio between leased area and total GLA of each mall at the end ofeach period. 27
  28. 28. 4Q10 Earnings ReleaseAPPENDICESConsolidated Balance Sheet(R$ thousand) 2010 2009 %ASSETSCURRENTCash and cash equivalents 61,566 86,252 -28.6%Accounts receivable, net 21,650 18,003 20.3%Taxes recoverable 9,659 7,367 31.1%Advances to suppliers 183 188 -2.7%Prepaid expenses 175 196 -10.7%Other credits 5,801 3,139 84.8%Total current assets 99,034 115,145 -14.0%NON-CURRENTLong-term receivables:Restricted financial investments 557 418 33.3%Accounts receivable, net 9,582 8,011 19.6%Loans to condominiums 561 449 24.9%Deferred income and social contribution taxes 13,590 16,829 -19.2%Juducial deposits 3,584 2,877 24.6%Other credits 2,461 1,563 57.5%Related parties - 76 -100.0%Investments 19,033 16,874 12.8%Investment properties 2,181,412 1,889,175 15.5%Fixed 4,532 3,468 30.7%Intangible 873 299 192.0%Total non-current assets 2,236,185 1,940,039 15.3%TOTAL ASSETS 2,335,219 2,055,184 13.6% 28
  29. 29. 4Q10 Earnings ReleaseConsolidated Balance Sheet(R$ thousand) 2010 2009 %LIABILITIES AND SHAREHOLDERS EQUITYCURRENTLoans and financing 7,171 65,763 -89.1%Brazilian suppliers 15,807 10,791 46.5%Taxes payable 6,602 4,472 47.6%Salaries, wages and benefits 6,733 7,661 -12.1%Technical structure 5,410 5,362 0.9%Related parties 85,599 85,281 0.4%Dividends payable 2,939 6,239 -52.9%Other obligations 11,370 9,127 24.6%Total current liabilities 141,631 194,696 -27.3%NON-CURRENTLoans and financing 194,677 117,725 65.4%Key Money 11,838 7,170 65.1%Accounts payable - land purchases 25,000 - 100.0%Deferred income and social contribution taxes 278,943 229,811 21.4%Provisions for contingencies 10,906 12,368 -11.8%Provisions for variable compensation 427 1,005 -57.5%Total non-current liabilities 521,791 368,079 41.8%SHAREHOLDERS EQUITYCapital stock 532,845 529,784 0.6%Capital reserve 96,198 90,817 5.9%Profit reserve 648,344 512,089 26.6%Equity attributable to owners of the parent company 1,277,387 1,132,690 12.8%Advance for future capital increase - 1,784 -100.0%Equity attributable to owners of the parent company 1,277,387 1,134,474 12.6%and advance for future capital increaseMinority interest 394,410 357,935 10.2%Total shareholders equity 1,671,797 1,492,409 12.0%TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 2,335,219 2,055,184 13.6% 29
  30. 30. 4Q10 Earnings ReleaseConsolidated Income Statement(R$ thousand) 4Q10 4Q09 % 2010 2009 %NET OPERATING REVENUE FROM RENT,SERVICES AND OTHER 52,145 48,435 7.7% 185,009 154,141 20.0%COST OF RENT AND SERVICES (7,643) (11,491) -33.5% (34,738) (41,761) -16.8%GROSS PROFIT 44,502 36,944 20.5% 150,271 112,380 33.7%OPERATING REVENUE (EXPENSES)General and administrative (4,557) (3,683) 23.7% (15,963) (14,114) 13.1%Outsourced services (1,318) (3) 43833.3% (5,315) (3,468) 53.3%Legal fees (525) (333) 57.7% (3,712) (2,020) 83.8%Provisions for doubtful accounts 461 234 97.0% 2,171 99 2092.9%Other administrative expenses (3,175) (3,581) -11.3% (9,107) (8,725) 4.4%Taxes (171) (544) -68.6% (1,925) (2,916) -34.0%Equity income 664 812 -18.3% 2,696 2,662 1.3%Gain from fair value of investment properties 68,681 65,977 4.1% 142,726 226,651 -37.0%Other operating revenue (expenses), net 585 (508) -215.2% 4,163 347 1099.7%Total operating revenue (expenses), net 65,202 62,055 5.1% 131,697 212,630 -38.1%OPERATING INCOME BEFORE FINANCIAL 109,704 98,999 10.8% 281,968 325,010 -13.2%RESULTNET FINANCIAL RESULT 268 (2,584) -110.4% (4,440) (11,917) -62.7%INCOME BEFORE INCOME AND - - 0.0% - - 0.0%SOCIAL CONTRIBUTION TAXES 109,972 96,415 14.1% 277,528 313,093 -11.4%INCOME AND SOCIAL CONTRIBUTION TAXESCurrent (4,915) (3,939) 24.8% (12,397) (9,797) 26.5%Deferred (23,159) (19,477) 18.9% (52,371) (60,423) -13.3%Total (28,074) (23,416) 19.9% (64,768) (70,220) -7.8%NET INCOME 81,898 72,999 12.2% 212,760 242,873 -12.4%INCOME ATTRIBUTABLE TO:Owners of the parent company 46,122 43,398 6.3% 139,194 152,381 -8.7%Minority interests 35,776 29,601 20.9% 73,566 90,492 -18.7% 30
  31. 31. 4Q10 Earnings Release Consolidated Cash Flow Statement (R$ thousand) 2010 2009 CASH FLOW FROM OPERATING ACTIVITIES Net income for the year 212,760 242,873 Adjustments to reconcile net income to net cash from (used in) operating activities: Depreciation and amortization 1,210 1,206 Amortization of goodwill - - Residual cost of written-off fixed assets 71 181 Residual cost of land sold - - Unbilled revenue from rentals (1,571) (5,599) Provisions for doubtful accounts (2,171) (99) Provisions (reversal of) for contingencies (1,462) 560 Acrrual for variable compensation 1,373 4,180 Deferred income and social contribution taxes 52,371 60,423 Financial charges 10,871 16,788 Minority interest - - Changes in fair value of investment property (142,726) (226,651) Equity income (2,696) (2,662) (Increase) decrease in operating assets: - - Restricted investments (139) (418) Accounts receivable (753) (413) Loans to condominiums (112) 879 Taxes recoverable (2,292) (3,910) Advances to suppliers 5 (91) Prepaid expenses 21 (196) Judicial deposits (707) (769) Other (3,560) (3,971) Increase (decrease) in operating liabilities: Salaries, wages and benefits (2,879) 1,326 Brazilian suppliers (1,878) (3,415) Taxes payable 2,130 1,076 Technical structure 4,716 4,574 Other obligations 2,243 7,249 Cash provided by (used in) operating activities 124,825 93,121 interest paid (18,643) (7,861) Net cash from (used in) operating activities 106,182 85,260 CASH FLOW FROM INVESTMENT ACTIVITIES acquisition or construction of investment property (117,617) (221,009) Acquisition of fixed assets (1,197) (1,132) Increase in intangible assets (681) (225) Increase in deferred charges - - Increase in capital invested - - Proceeds from the sale of land and other fixed assets - - Dividends received 537 296 Net cash used in investment activities (118,958) (222,070) CASH FLOW FROM FINANCING ACTIVITIES Capital increase 3,555 108,431 Advance for future capital increase - 1,784 Loans and financing raised 77,333 96,985 Loans and financings paid - principal (59,000) (62,666) Interest on loans and financing paid - - Dividends paid (3,136) - Income distributed (27,435) (24,922) Related parties (3,227) 76,008 Net cash from financing activities (11,910) 195,620 NET INCREASE (DECREASE) IN BALANCE OF CASH AND (24,686) 58,810 CASH EQUIVALENTS CASH AND CASH EQUIVALENTS At end of year 61,566 86,252 At beginning of year 86,252 27,442 NET INCREASE (DECREASE) IN BALANCE OF CASH AND (24,686) 58,810 CASH EQUIVALENTS 31