2013 IN REVIEW Economic, Environmental and Social Performance PORTUGAL GREECE LISBOA ATHENS PORTO ITALY ALGERIA MILAN KOUBA LUXEMBOURG BRAZIL LUXEMBOURG SÃO PAULO MOROCCO CHINA CASABLANCA SHANGHAI ROMANIA COLOMBIA BUCHAREST CALI SPAIN CROATIA MADRID ZAGREB THE NETHERLANDS GERMANY HOOFDDORP DÜSSELDORF TURKEY ISTANBUL For more information on our offices please visit http://www.sonaesierra.com/en-gb/contactus/ouroffices.aspx Creating value from… UNIQUE SHOPPING EXPERIENCES www.sonaesierra.com ­ SonAE SIERRA WE hAvE lonG RECoGnISEd ThAT EnvIRonmEnTAl And SoCIAl pERFoRmAnCE AFFECTS ouR FInAnCIAl RESulTS, And WE bElIEvE ThAT ouR lonG-TERm buSInESS SuCCESS IS dEpEndEnT on All ThREE dImEnSIonS: EConomIC, EnvIRonmEnTAl And SoCIAl. Hofgarten Solingen, Germany ..... About tHiS report This report provides a summary overview of Sonae Sierra’s economic, environmental and social strategy and the Company’s performance in 2013. We have also published a fully integrated Economic, Environmental and Social Report, available on our website which draws heavily on the International Integrated Reporting Council’s (IIRC) Framework on Integrated Reporting and the Global Reporting Initiative (GRI) G4 Sustainability Reporting Guidelines. As such, it provides our stakeholders with a more robust and detailed account of our current strategy and performance in 2013, and further demonstrates the alignment between our core business and sustainability goals. Contents 01 Who We Are 02 CEo’s Statement 04 The Year at a Glance 06 our Company 10 our business model and Strategy 12 The Wider Context 14 operational performance 22 Consolidated Accounts 28 Future outlook 30 board members and Executives www.sonaesierra.com ­ 2013 In Review .01 ..... WHo We Are Sonae Sierra is a specialist at the cutting edge of shopping centre development, ownership, management and the delivery of professional services in geographies as diverse as Europe, South America, North Africa and Asia. passionate about bringing innovation and excitement to the shopping industry since 1989, Sonae Sierra has been interpreting trends and spearheading a movement that has defined the shopping centres of the future. Through our integrated strategy of investment, development and property management, we have developed a unique understanding of the business and markets we operate in, and we have earned more international awards than any other company in our sector. We have pioneered the integration of sustainability principles into the shopping centre business and we are already reaping the benefits of this forward-thinking approach. passeio das Águas Shopping, brazil boulevard Londrina Shopping, brazil AlgarveShopping, portugal .02 SonAE SIERRA ..... Ceo’S StAtement A conversation with Fernando Guedes oliveira 2013 SAW uS ConSiStentLy outperForm tHe retAiL SALeS index in moSt oF tHe europeAn CountrieS WHere We operAte; Continue to expAnd our buSineSS tHrouGH tHe inAuGurAtion oF neW SHoppinG CentreS And SeCure neW mAndAteS For our SHoppinG Centre proFeSSionAL ServiCeS buSineSS. Fernando Guedes oliveira Chief Executive officer Q: How would you describe the business’s performance over the last • deploy our capital recycling strategy to fund new developments and twelve months? Has the year turned out as you expected? reduce our exposure to investment properties, with a shift from a mature market concentration to a greater weight of emerging A: overall, Sonae Sierra’s business exceeded expectations for 2013. our markets (including brazil). net Result for the full calendar year was €3.6 million; we delivered a direct profit of €57.6 million and presented an EbITdA of €113.5 million. • Reinforce our professional services business. 2013 saw us consistently outperform the retail sales index in most of the • pursue new development opportunities with a capital-light approach European countries where we operate; continue to expand our business in the use of equity. through the inauguration of new shopping centres and secure new mandates for our shopping centre professional services business. Whilst In 2013 we concluded the sale of three assets – one in Spain and two in our direct results show a decline in comparison with 2012, this is due to Italy – to institutional investors, enabling us to perpetuate our capital the sale of assets during the last two years in line with our capital recycling strategy. Two more significant achievements of our investment recycling strategy. on a like-for-like basis, our direct profit and EbITdA business were the extension of the Sierra Fund for an additional five year would have in fact remained stable. period, and the acquisition of a further 50% stake in CascaiShopping, through a majority-owned subsidiary, a prime asset in Greater lisbon. In Europe, we can identify a clear split in terms of the economic conditions across the year. In the first five months of 2013, we saw decline in sales and We inaugurated three new shopping centres – one in Germany and two expansion in yields as forecast. however, from may onwards we witnessed in brazil. In Germany, hofgarten Solingen is already exceeding expected an uplift in consumer confidence and since october we have achieved performance in terms of footfall and sales. In brazil, our expansion into month-on-month sales growth across the majority of our portfolio, two new states in the interior and south of the country – Goiás and combined with a stabilising of yields, particularly in portugal and Spain. paraná – has significantly added to the GlA of our portfolio in this market. We feel confident that the momentum will continue to pick up as we move boulevard londrina Shopping and passeio das Águas Shopping are into 2014 and we have built a strong platform to take advantage of market reference points in terms of high-quality design and best practice in recovery as soon as it materialises. In brazil, on the other hand, the economy safety, health and environment in these regions. brazil offers strong is still expanding in spite of recent deceleration: we saw an increase above potential for new projects as well as expansions/refurbishments to 5% in tenant sales and we were able to deliver strong rental growth. existing assets, and in this context we also launched a significant expansion project at Franca Shopping in São paulo. In terms of new development, Q: What progress did Sonae Sierra make towards its objectives for we commenced works on a new flagship shopping centre in bucharest, 2013 and beyond? Romania in a joint venture partnership with Caelum development. A: our business strategy remains the same and is validated by the our professional services business continues to bear fruit, with over changes we saw during 2013. We continue to: 50 new contracts signed in 2013 and the successful launch of Sierra Reval, a partnership created to deliver shopping centre services in • maintain and enhance our shopping centre specialism. Turkey. At the start of 2014 we also finalised an important joint venture partnership with Citic Capital to provide management and leasing services in China. 2013 In Review .03 Q: What have been the most significant challenges and how have you Q: What are your priorities for 2014, and how do you see the overcome these? year unfolding? A: Without a doubt the adverse economic conditions in Southern Europe A: overall, I am cautiously optimistic about the year ahead. continue to present the greatest challenges for our business. Scarcity of Anticipating gradual stabilisation in Southern European markets, we will debt, weak retail sales and fluctuating yields continue to compromise our continue to pursue a dynamic management approach with a focus on ability to proceed with new development, maximise rental income and improving occupancy, rental income and tenant sales. In Iberia, where the improve our direct results. market has bottomed out, we expect values to improve slightly during however, our teams have deployed considerable initiative and efforts to 2014 at least for prime assets, and for more investors to return to the maintain our high occupancy rates – an average 94.4% across our global market. Whilst we do not currently have plans to acquire or develop portfolio and 97.4% in portugal, one of the countries most affected by any more assets in this market, we will proceed with expansion and the Eurozone crisis – and to strengthen the appeal of our assets as refurbishment works when the conditions are right to enhance the cutting-edge shopping and leisure destinations for consumers. on this value of our existing portfolio. front, I am particularly proud of the work we have done to support our We believe that the German market will remain the strongest within the tenants’ businesses; driving down service charges through cost-cutting Eurozone, with growing investor appetite for both primary and secondary measures (including eco-efficiency); introducing exciting new retail assets. Consequently, we will seek opportunities for new developments concepts into our malls and exploiting digital media platforms to enhance and acquisitions in this country, as well as in Italy where we are seeing sales activation. patent signs of recovery. Furthermore, the successful disposal of the three assets mentioned The main focus of our strategy in brazil will be on development; we will previously enables us to release capital to fund our new investment and/or proceed with the construction of a new development pipeline and exploit development activity in the context of a constrained debt market. The opportunities for redevelopment on key