CSFB 3rd Brazil Construction & Mortgage Field Trip
1. CSFB 3rd Brazil Construction & Mortgage Field
Trip
São Paulo, Brazil, August 30nd, 2006
Second Quarter 2006 Launches
Blue Land – Rio de Janeiro
Belle Vue – Porto Alegre Paço das Águas – São Paulo Vistta Ibirapuera – São Paulo Beach Park Living - Fortaleza
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2. “Safe-Harbor” Statement
We make forward-looking statements that are subject to risks and uncertainties. These statements are based on the
beliefs and assumptions of our management, and on information currently available to us. Forward-looking statements
include statements regarding our intent, belief or current expectations or that of our directors or executive officers.
Forward-looking statements also include information concerning our possible or assumed future results of operations, as
well as statements preceded by, followed by, or that include the words ''believes,'' ''may,'' ''will,'' ''continues,'' ''expects,'‘
''anticipates,'' ''intends,'' ''plans,'' ''estimates'' or similar expressions. Forward-looking statements are not guarantees of
performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore
depend on circumstances that may or may not occur. Our future results and shareholder values may differ materially from
those expressed in or suggested by these forward-looking statements. Many of the factors that will determine these
results and values are beyond our ability to control or predict.
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3. Agenda
Page
Company Overview 3
Culture and Business Model 8
Overview of Operations 12
Opportunities Ahead 15
Operating and Financial Performance 23
Appendix 31
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4. Overview da Companhia
We are one of Brazil´s leading homebuilding companies, focusing on residential markets.
Over the last 50 years, we have been recognized as one of the foremost professionally-managed
homebuilders
In December 1997, GP and CIMOB entered into a partnership whereby a new company was
formed under the name of Gafisa S.A., following the transfer of its land reserves, brand and
personnel.
In 2004, entities related to GP acquired a significant equity interest in our company and in the
following year acquired the remaining stake held by CIMOB.
In 2005, an affiliate of Equity International Properties, acquired approximately 32% of our
company.
Gafisa raised R$ 494.4 million in an initial public offering to invest in new residential projects.
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5. Well Defined Strategy
Our Strategy
Create the leading residential development company in Brazil based upon sales,
profitability and quality
Maintain land Maintain debt
Focus on high Continued
Strong revenue bank of policy of
return geographic
growth 2-3 years of 40% - 60% net
opportunities expansion
future sales debt / equity
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6. Gafisa: Premier Growth Opportunity
Professional Management
Industry Leadership and
and
Strong Brand Recognition
Established Organization
World-class Shareholders
Geographic
and the Highest Standards
Diversification
of Corporate Governance
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7. World-Class Shareholders and Corporate Governance
Led by GP and EI, Gafisa is the only homebuilder with an institutional shareholder base …
Post-IPO Shareholder Structure 1
► A leading investor in real
► Proven track record in the estate companies outside of
Brazilian capital markets the U.S. Free Float
– Submarino, ALL, ► Portfolio includes Homex,
Cemar, among Mexico’s leading
others homebuilder
► Founded by Sam Zell
21.8% 27.4% 50.8%
Superior Governance Standards
► Novo Mercado listing ► 2 independent board
► 100% tag along rights members
► US GAAP ► Audit Committee
Note: … and commitment to superior corporate governance standards
1 Excludes treasury stocks
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8. Agenda
Page
Company Overview 3
Culture and Business Model 8
Overview of Operations 12
Opportunities Ahead 15
Operating and Financial Performance 23
Appendix 31
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9. Professional Management and Superior Organizational Structure
A superior organizational structure and professional management yield results …
Gafisa People and its culture
Professional, experienced and motivated management focused on value creation
Committed to In depth industry Results driven Ownership
develop leaders knowledge culture Culture
4 out of 7 directors Management, on 40% to 60% of More than 25
joined the average, with more compensation managers hold
company as than 14 years of linked to 3.6% of the
interns experience aggressive targets company
A unique business model in the industry oriented towards maximizing shareholder
profitability
… and make Gafisa a scalable business platform
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10. Efficient and Scalable Organizational Structure Designed to Sustain Growth
Gafisa’s Business Owner Structure is Unique on the Sector
Better execution, goals,
Senior standardization, best
Management practices
Regional Regional Geography
Operation Operation Operation … Operation Operation Operation …
Operations
(Construction) …
Goals definitions,
Performance management,
best practices, Sales Performance …
standardization, economies
of scale Human Resources …
IT …
Finance
…
Back-office
…
Tasks
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11. Efficient Business Model
An efficient business model, based on three main pillars…
Land Acquisition High Asset Turn Over
Proven ability to source land High sales velocity: 70% of units
Acquire land mostly via swap sold before construction
Minimize cash outflow Securitize client receivables to
Alignment with landowner
ROE
optimize working capital
Low Cost
Operations
Builds for some of Gafisa´s main competitors
Standardized construction techniques
Innovative materials and techniques
… oriented towards maximizing shareholder profitability (ROE)
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12. Agenda
Page
Company Overview 3
Culture and Business Model 7
Overview of Operations 12
Opportunities Ahead 15
Operating and Financial Performance 23
Appendix 31
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13. A Diverse Product Mix Positions Gafisa to Take Advantage of Positive Environment
Gafisa’s product diversification is a key differentiating strategy…
The Gold-SP Blue -RJ Side Park - SP Lorian - SP
High-End Middle and Mid-High Affordable Entry Level Land Subdivision
Size 100 to 500 sq.m 70 to 150 sq.m 45 to 65 sq.m 100 to 1,000 sq.m
# of Units up to 100 150 to 300 100 to 500 100 to 400
Price Range Above 400K R$ 150k to 400K R$ 70k to 130K Up to 300k
Household Income¹ Above R$150,000 R$ 70,000 to R$150,000 R$ 32,000 to R$ 62,000 Diverse
Financing Provided by Gafisa Commercial Banks and CEF 100% CEF (directly to buyer) Provided by Gafisa
Average Price sq.m Above R$3,600 R$ 2,000 to R$ 3,600 R$ 1,800 to R$ 2,000 R$ 150 – R$ 800
% of 2006 Launches² 19% 62% 2% 10%
Typical Project Margin 37% 31% 28% 44%
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Notes:
¹ Annual household income. ² Gafisa has commercial buildings which accounted for the remaining 7% of the 2006 Launches
14. Present in 12 states, Gafisa is one of the most geographically diverse builders in
Brazil
Geographical expansion offers further growth potential in the medium term
North Northeast
• Rapidly Expanding Export Platform • Second Home, Foreign
Investments
• Brazil’s New Agricultural Frontier
Mid-west
• High Dependant on the Agricultural
Business South
Gafisa’s core markets (SP / RJ) • Nation’s Highest Income Per
Capita
Recently signed partnerships
► How Gafisa is differentiated in Developing Markets?
► Why expand through JVs with local partners?
Strength of its brand and its track record in São Paulo
Develop local partnerships to leverage regional market and Rio de Janeiro
knowledge, legal skills, risk mitigation and entry barriers
Innovative project concepts
► Growth Opportunities Differentiated project designs
Multiple drivers of other markets mitigate growth risk
Small and poorly capitalized competitors Delivery of products on time and demand-aligned
Better margins payment conditions
Business Owners Organizational Structure provide a Aggressive marketing strategy
totally focused local management integrated and
supported by Gafisa Corporate Unit in Sao Paulo
Although SP and RJ are still core markets, “New Markets” already
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represents 32% of Gafisa’s Launches
15. Agenda
Page
Company Overview 3
Culture and Business Model 8
Overview of Operations 12
Opportunities Ahead 15
Operating and Financial Performance 23
Appendix 31
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16. Robust Growth Prospects in Brazil and the Favorable Demographics Make It Difficult to
Ignore Its Potential
Brazil’s housing market presents large and sustainable demand…
Brazil’s Economic Trends Favorable Housing Market Trends
► Largest economy in South America ► Attractive demographics: young and growing
population
► Politically stable and fiscally conservative
► Strong pent-up demand:
► Strong economic fundamentals
– Unemployment rate: declining – Housing deficit currently grows at a pace of
– Interest rates: declining 300,000 units per year
– Country risk at historical lows
Interest Rates (Selic) - Historical and Forward Brazil Demographic Pyramid - 2005
29 75-79
27
65-69
25
55-59
23
45-49
21
19 35-39
17 25-29
15 15-19
13 5-9
out fev jun out fev jun out fev jun out fev jun out fev
02 03 03 03 04 04 04 05 05 05 06 06 06 07 -10 -8 -6 -4 -2 0
0 2 4 6 8 10
Source: Central Bank and Focus (Market Estimates) Source: IBGE
…which is expected to continue significantly exceeding supply
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17. Commercial banks are coming to fuel the housing sector
Increasing credit availability and new regulation will support the potential of the sector
Timeline - Recent Developments in the Housing Sector
R$ billion ► 2005 - Individuals gets Tax
exempted on MBS Investments
► 2006 - Bradesco plans to triple
► ABN Amro, Santander and mortgage lending activity this year
HSBC reduce Mortgage Rates to to nearly R$2 billion.
8%p.y from 12%p.a.
► Itaú launches 15-yr fixed mortgage
20,3 rate (18.85%p.a.)
► Itaú, Bradesco, Unibanco follow
suit ► CEF comes back to middle income
market (10.9%p.a.)
► Santander launches 10-yr fixed
mortgage rate (21%p.a.) ► Santander launches 20-yr fixed
mortgage rate (16.9%p.a.) HSBC
► 2004 - Resolution 10,3 @ 12.68% pa. - 10 years
10.931 Improves 13,9
► 2003 - Central Foreclosure ► Gafisa, HSBC and Santander offer
Bank increases regulation 13% pre-approved mortgages
bank requirement ► Central Bank may allow paycheck
to invest in the discount for mortgage lending
sector 9,4
9,0 9,1
6,7 83% 5,3
6,0
4,9
109% 10,0
4,5
2,9
104%
4,8 4,1
3,0
2,2 2,0
2003 2004 2005 2006E 1H05 1H06
Mortgage by Commerc ial Bank s¹ CEF Mortgage Loans
Sources: ABECIP, Central Bank. ¹ Total mortgage lending using savings deposits
funding (channeled-lending requirement). 17
18. Decreasing Interest Rates and Development of the Mortgage Market…
…will directly impact housing affordability
Current Financing provided Current SFH Mortgage Expected Medium Term
by Homebuilders Scenario
Unit Price (R$) 200,000 200,000 200,000
Loan-to Value – LTV (%) 60% 60% 90%
Down Payment (R$) 80,000 80,000 20,000
Mortgage Financing 120,000 120,000 180,000
Real Interest Rates 12% p.a. 12% p.a. 8% p.a.
Tenor (years) 6 15 23
~10% of ~16% of
Monthly Installment (R$) 2,308 the labor 1,393 1,396 the labor
market market
Required Monthly Household
Income (R$) 9,232 5,573 5,583
Gafisa’s Mortgage Penetration (Sao Paulo) Gafisa’s Mortgage Penetration (Rio de Janeiro)
60% 50%
% Mortgage / Total Pre-sales % Mortgage / Total Pre-sales
50%
40%
40%
30%
30%
20%
20%
10%
10%
0% 0%
2004 2005 1Q06 2Q06 2004 2005 1TRI06 2TRI06
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19. High Fragmentation is also an opportunity
Gafisa´s strong brand and market positioning are a competitive advantage against the many family-
owned and non-professional competitors
Market Share in São Paulo (2005) Market Share in Rio de Janeiro (2005)
Cyrela Brazil Realty
8%
13%
5%
Rossi Residencial
2% Agenco
13%
Company S.A.
3%
Others
Others
80% Tecnisa RJZ Cyrela
42%
2% 12%
Carmo Calçada
CHL 11%
9%
04-05 04-05
2005 2005
Growth Growth
Units (#) 33,748 24% Units (#) 8,832 23%
Launchings (R$ bi) 9.0 19% Launchings (R$ bi) 3.0 2%
Source: EMBRAESP and SECOVI Source: ADEMI
Well capitalized companies will benefit
from increasing demand
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20. Size and Strong Brand Matters in this Sector
“Gafisa” has a very strong appeal to the buyers, with a direct link to its Real Estate products
Strong brand and track record enables it to enter into
swap agreements, paying for the land with units of the
future development
“Safe hands” appeal to the buyers results higher in pre-
sales velocity compared to smaller players
First look at land and partnership deals
Product and geographic diversity
Strong balance sheets
Scale to leverage processes and supply agreements
Expertise to underwrite, control and process land
Attract and retain high talent work force
Greater relative investment in technology
Palazzo Farnese - SP
… made Gafisa’s brand one of the best-known in the Brazilian
real estate industry
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21. Strategic Land Bank
Land Bank representing 2-3 years of future sales
Gafisa’s Current¹ Land Bank
Potential Units %
by Income Segment Future Sales acquired
Lots & (R$ mm) by swap
High Middle AEL
Com
São Paulo 336 2,118 - 8 846 67%
Rio de
1,032 1,080 - 418 604 90% São Bernardo do Campo
Janeiro
Other
444 2,115 - 270 638 92%
Cities
Total 1,812 5,313 - 696
2,089 84%
% 23% 68% 0% 9%
¹ As of June 30th
Rio de Janeiro
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22. Even in cities like Sao Paulo and Rio de Janeiro, Land is far from Scarce
A Land bank representing 2-3 years of future sales is enough to sustain our strong growth rates
Verdes Pracas - SP
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23. Agenda
Page
Company Overview 3
Culture and Business Model 8
Overview of Operations 12
Opportunities Ahead 15
Operating and Financial Performance 23
Appendix 31
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26. … as we are recognizing previous years revenues
2Q06 Pre-sales x Recognized Revenues (R$000)
Developments Pre-Sales % of Pre-Sales Revenues % of Revenues
143,699 84% 16,042 11%
Launched in 2006 63%
Launched in 2005 48,347 21% 44,542 29%
Launched in 2004 16,557 7% 33,951 22% 59%
Launched in 2003 13,832 6% 36,963 24%
Launched in 2002 6,436 3% 8,240 5%
Others na na 12,809 8%
Total 228,870 100% 152,547 100%
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27. Historically, almost 90% of a year’s earnings are based on previous’ years
launches
Income Statement doesn’t necessarily reflect the economics of the Sector
Earnings are recognized under the percentage of completion method
Year 1 Year 2 Year 3
Accumulated Sales (a) 70% 90% 100%
Percentage of completion (b) 15% 65% 100%
Accumulated earnings
11% 59% 100%
recognized (a x b)
Earnings recognition 11% 48% 42%
per year
However, earnings “lag” provides strong predictability
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28. Strong Pre-sales performance will positively impact future earnings
Currently, Gafisa has approximately R$243 million of results to be recognized (a 91% growth compared
to 2Q05)…
Revenues and Results be Recognized (R$ mm) Backlog Margin (%)
43.3%
41.1%
2Q05 1Q06 2Q06 (c)/(a) (c)/(b)
(a) (b) (c) % %
Sales to be Recognized 383,2 473,4 560,7 46% 33.1%
18%
Costs of Units Sold
(256,3) (278,9) (317,8) 24% 14%
to be Recognized 1
Results to be 91%
126,9 194,5 242,8 25%
Recognized
Margin to be
33.1% 41.1% 43.3%
Recognized
Note:
1 Includes only land and construction costs 2Q05 1Q06 2Q06
… with margins record high margins of 43.3%
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29. Strong Financial Position…
…coupled with focus on working capital management
(R$ million) 2Q06 2Q05 1Q06
Short Term Debt 85 38 86
Long Term Debt 191 102 199
Total Debt 276 140 285
Cash and Cash Equivalents 423 119 481
Net Debt (Net Cash) (147) 21 (196)
Shareholder’s Equity 806 321 788
Total Capitalization 1,082 461 1,073
Net Debt/ Equity -18% 7% -25%
In order to optimize its working capital, Gafisa has been demanding new product from banks:
Gafisa and Banco HSBC offer pre-approved mortgage in Santo Andre (Sao Paulo)
Gafisa and Banco Santander Banespa Launches No-paperwork mortgage in Rio de Janeiro
Gafisa and Banco Santander Banespa offer mortgage with discount on rent during construction
period
More recently, Gafisa’s Board approved a R$100 million securitization of Receivables from clients
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30. Our Goals for 2006
Continued Growth Pace
► Launching growth guidance for 2006 of 25-28% in nominal currency terms
Margin Expansion
► EBITDA margin for FY06 of 16-17% (as % of Net Revenues)
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31. Agenda
Page
Company Overview 3
Culture and Business Model 8
Overview of Operations 12
Opportunities Ahead 15
Operating and Financial Performance 23
Appendix 31
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32. Development Process
Land
Launch Construction Delivery
Purchase
►
►
Market
Market ►
►
Sales: 70% of
Sales: 70% of ►
►
Sales: 30% of
Sales: 30% of ►
►
Securitization
Securitization
research
research units
units units
units ► Bank mortgage
► Bank mortgage
►► Project
Project ►► Secure client
Secure client ►► Secure
Secure (customer)
(customer)
analysis
analysis financing
financing construction
construction
financing
financing
►► Sales strategy
Sales strategy
►► Efficient
Efficient
►► Internal
Internal construction
construction
approvals
approvals
►► Permitting
Permitting
- 6th to 0 month 0 to 12th month 12th to 36th month After 36th month
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33. Typical Project Cash Flow
The nature of the business requires funding for the first year of development…
Cumulative Cash Flow to Equity 1, 2
Expected ROIC = 35% ► Construction
15
Finance (SFH) ► Securitization of
repayment remaining
receivables
5 ► Beginning of
construction
R$ million
Maximum exposure:
10% to 12% of
sales contracted
(5)
► End of construction
► Customer gets
commercial mortgage
► Project launching financing
(15)
-6 – 0 0 – 12 12 – 36 36 +
months months months months
Land
Launching Construction Delivery
Purchase
Notes:
1 Construction financing provided with funds from SFH
2 Middle-income with swap agreement project … followed by significant cash in-flows
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