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10/20/2012

Strategy and Competitive Advantages

Strategy

The strategy of Sonae Sierra Brasil is to grow its portfolio and maintain its position as one of the leading shopping center developers, investors and managers in Brazil, while seeking to provide superior returns to its shareholders in a sustainable and responsible way. The company aims to meet these goals by implementing the following strategies:

Focus on value creation through organic growth. The Company has a well-defined strategy to increase its shopping center portfolio based on two main sources: (i) first by developing new shopping centers that are dominant in their geographic areas, focused on the developing middle-class segment of Brazilian consumers and capable of maintaining a strong competitive position based on factors such as population density, the increasing purchasing power of potential customers and unsatisfied consumer demand; and (ii) second by expanding and/or refurbishing its existing shopping centers to differentiate them by including innovative features to increase their market share and create entry barriers against new competitors.

In further detail, our main strategies are.
 

  • Development of new shopping centers. The Company plans to continue to engage in new or greenfield developments as its main growth driver, given its belief that its focus on development generates attractive returns and creates more shareholder value than growth through acquisitions of existing shopping centers. In addition, this type of development gives it more flexibility to define the location, scale, target market and store mix of the shopping center, helping to ensure that the project furthers its strategic objectives. Expansion and refurbishment of existing shopping centers. At the same time, the Company also plans to grow by expanding existing shopping centers when profitable.
  • Acquisition of additional interests in its portfolio properties, as well as of interests in third-party shopping centers. Sonae Sierra Brasil plans to selectively make acquisitions of additional interests in shopping centers that are already part of its portfolio. The Company believes that it can make acquisitions of this type in an efficient and timely manner due to its knowledge of the property and its relationships with relevant partners. By increasing its ownership percentage in this way, its believes that it can achieve greater operational leverage, strategic control and operating synergies in its shopping centers, enabling it to implement its overall strategic initiatives more effectively and cost-efficiently.
  • Leverage relationships with top national and international retailers. Through the performance of its business administration and asset management activities and the relationship of its shareholders with international retailers, Sonae Sierra Brasil plans to focus on maintaining and growing its relationships with top international and Brazilian retailers, such as Walmart, Zara, C&A, Cinemark, Lojas Renner, Riachuelo, Centauro and Livraria Saraiva, as well as seeking new relationships. The Company will continue to draw on its experience and the experience of Sonae Sierra and Mr. Alexander Otto & Affiliated Companies to identify the mix of stores that it believes is the most ideally suited to serve the individual target market of its shopping centers.
  • Focus on returns to shareholders and financial discipline. Based on the extensive experience of its shareholders and its qualified and professional management team, Sonae Sierra Brasil will continue to adopt sound business management procedures focusing on maximizing business opportunities, optimizing the utilization of its assets, reducing costs and mitigating risks, through strict management planning and monitoring policies, applied at all corporate levels. It also plans to maintain its solid financial condition to support the implementation of its strategy of growth and asset appreciation, particularly by using the cash flow from its operations. Top

Competitive Advantages

Sonae Sierra Brasil believes that its main competitive strengths include the following:

Significant presence in key markets. Five of our nine shopping centers in operation are located in the State of São Paulo, the wealthiest and most economically significant state in Brazil.

Exposure to the fast-growing middle class segment of the Brazilian population. The majority of shopping centers in its portfolio is aimed at the middle class segment of the Brazilian population. Sonae Sierra Brasil believes that one of the key drivers of its significant growth in revenues, net income and EBITDA in recent years has been this focus on Brazil‘s growing middle class.

Vertically integrated business model which allows control and strong cash generation. Sonae Sierra Brasil believes that its vertically integrated business model enables it to exercise continuous control over the quality and profitability of its shopping centers.

Controlling interests in most of its shopping centers. By virtue of its equity interests, the Company controls eight of our nine operational shopping centers and manages all of them, giving it an ample say in strategic decisions, such as expansions, redevelopment and selection of tenants, all facilitating the execution of its strategy of organic growth, maintenance of relationships with key tenants and generation of value. In any other cases, it needs a specific quorum for approval.

Partnership with tenants and relationships with Brazilian and foreign retail operators. Sonae Sierra Brasil has established important relationships with some of the top international retail tenants, such as Walmart, Zara, C&A and Cinemark by building on their existing relationships with its indirect controlling shareholders, as well as with leading Brazilian retailers, including Lojas Renner, Riachuelo, Centauro and Livraria Saraiva. The Company believes that commercial relationships generate new business and facilitate the launching and marketing of new shopping centers and expansions of existing shopping centers.

Experienced shareholder sponsorship and experienced and professional management team. Sonae Sierra Brasil has obtained significant benefits from the active contributions and management experience of its indirect controlling shareholders, Sonae Sierra and Alexander Otto, international leaders in the shopping center and leisure sectors in their operating market.