Ernst & Young / Latin Markets 2nd Real Estate Investment Forum

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1 Ernst & Young is now EY Highlights Ernst & Young / Latin Markets 2nd Real Estate Investment Forum Brazil, 2014 This is the second year in which Ernst & Young has led the Real Estate Investment Forum - Brazil, one of the leading events in Brazil on the domestic real estate market. This initiative is the result of a partnership with Latin Markets, organizer and owner of the event. As the top auditing and consulting firm in the real estate market in Brazil and the world, Ernst & Young reinforces, through this event, its commitment to its clients and the industry by encouraging high-level discussions on important themes for this market and providing a broad range of quality information for these discussions. Brazilian, foreign, private and institutional investors were present, in addition to many of the industry s leading players. The event was attended by almost 300 of whom more than half were from 15 other countries. The following are some of the main conclusions arrived at during the event regarding the current scenario for the Brazilian real estate market. André Viola Ferreira Strategic Growth Markets and Real Estate Lead Partner for Ernst & Young in Brazil and South America Viktor Andrade Ernst & Young Brazil M&A Leader and South America Transaction Real Estate Leader

2 Outlook for real estate See the results of the survey conducted with roughly 300 executives present at the event. Viktor Andrade, Brazil M&A Leader and South America Transaction Real Estate Leader, Ernst & Young; Josh Pristaw, Senior Manager Director, GITS; and Daniel Cherman, Brazil Country Head, Tishman Speyer Causes Concerns Helmut Fladt, Managing Director, Pátria Investimentos; Vitor Senra, Managing Director, Brio Investimentos Imobiliários; and Randall Loker, CIO, Paladin Realty 66% believe that the main cause of excess supply in some real estate asset classes is the result of excessive optimism and pressure on industry executives for results. 71% are concerned with the slowing of the economy. Inflation is a concern for 5%. Prices André Ferreira, Real Estate Lead Partner for Brazil and South America, Ernst & Young; and Roberto Perroni, CEO, Brookefield 60% expect that residential real estate prices will remain stable even if Brazilian GDP growth remains between 1% and 2% for the next 2 to 3 years. Only 6% believe that there could be a rapid decline. 51% believe that sale and rent prices for offices will fall no more than 10% if GDP growth remains between 1% and 2% for the next 2 to 3 years. Only 16% believe that there could be a rapid decline. Viktor Andrade and Christopher Moad, Portfolio Manager Real Estate, Canada Pension Plan Investment Board Investments 78% of the investors continue to demand internal rates of return on capital invested that are equal to or above those practice two years before (20% per year or more). Duncan Osborne, Senior Vice President Investments, Cadillac Fairview The Real Estate Brazil Investment Forum is a proprietary event produced and organized by Latin Markets LLC. Ernst & Young is the lead-sponsor of this event.

3 See the full results of the survey What is your greatest worry about the performance of the RE Market in the next 12 months? What is your current IRR target for RE developments in Brazil (real terms)? Economic slowdown Inflation Cost of Financing Existing stock 5% 6% 18% 71% 5-10% 10-15% 15-20% 20-25% 25-30% 10% 15% 12% 32% 31% If GDP growth remains between 1-2% per year for the next months, what to you expect will happen to residential real estate price (in real terms)? If the right RE investment opportunities are found, you or your organization are willing to invest over the course of the next 12 months: Fall 10-25% Fall 0-10% Remain stable May increase between 0-5% Could increase more than 5% 2% 6% 12% 31% 48% up to R$ 50 million R$ 50 to R$ 100 million R$ 100 to R$ 250 million R$ 250 to R$ 500 million R$ 500 million or more 14% 22% 18% 10% 36% If GDP growth remains between 1-2% per year for the next months, what to you expect will happen to office lease prices (in real terms)? What type of RE investment do you or your organization seek? Fall 10-25% Fall 0-10% Remain stable May increase between 0-5% Could increase more than 5% 16% 24% 8% 2% 51% Income generating assets RE Development Both 1 and 2 Opportunistic All of the above 10% 28% 20% 20% 22% If (or when) Brazilian GDP growth rebounds to 2-3% a year, what kind of growth in demand do you expect for residential products (per year)? 0-5% 5-10% 10-15% 15% or more 4% 17% 27% 52% Over the last two years, your IRR target for RE investments in Brazil has: Reduced Increased Remained the same 22% 32% 46% What do you think is the major cause that RE developers created the over supply which exists today in many markets? Pressure for results Excessive optimism about the markets Lack of adequate data about the RE markets Motivated by bonuses Others 9% 11% 14% 32% 34%

4 Practical implications Summary of the main insights gleaned from the Real Estate Investment Forum - Brazil Real estate companies must focus on efficiency improvement Given that the cost of capital is the same or higher than before and price compression, the only way to maintain margins comes from gains in efficiency. The complexity of the operations offers many opportunities for gains in efficiency for companies, something that cannot be ignored. Companies need to remain focused on producing competitive properties, without adopting price increase aggressive premises. Pension funds intend to double investment Various pension funds participated in the Real Estate Investment Forum and were unanimous in declaring that they would like to allocate more capital in the Brazilian real estate market. Among the funds present were CPPIB, Cadillac Fairview, World Bank Pension Fund, UTIMCO and FUNCEF. The vice presidents of investment for CPPIB and Cadillac Fairview, respectively Chris Moad and Duncan Osborne, declared that, in addition to the USD 4.8 billion that they have allocated in the Brazilian real estate market, they are ready and willing to allocate up to twice as much in the short term. Current market conditions are conducive to joint ventures with investment funds focused on real estate There is a scarcity of credit for the real estate sector in capital markets. There is, however, capital available and appetite from financial investors that see an opportunity for entry during this period of less favorable circumstances, but in a sector with indisputably solid structural factors. A view on the current landscape by Viktor Andrade Ernst & Young Brazil M&A Leader and South America Transaction Real Estate Leader We are faced with an interesting situation, in which the down cycle of the real estate market coincides with the down cycle of the economy as a whole. The down cycle of the real estate market is expected to rise as supply from the last two years is soaked up and, also, due to the greater depth of this market as compared to five years ago even if the macroeconomic situation remains the same. This is one of the points of consensus arrived at during the Ernst & Young and Latin Markets Real Estate Investment Forum. Despite the macroeconomic bumps in the road having contributed to the current state of the real estate sector, it is possible that this market will experience good times regardless of the improvement of the economy as a whole. However, part of the down cycle of the real estate market that affects some asset classes and geographic regions comes from causes within the sector itself notably, the excess supply created between 2009 and 2012, a result of excessive optimism from executives. It is important to consider that, within the last 7 to 10 years; the Brazilian real estate market has undergone huge transformations, that, among other factors, include: the large number of companies in the sector opening their capital (developers, brokers, etc.); the need of these companies to operate nationwide and report results to markets; the creation and growth of the real estate investment fund market; our econometric researches shows that GDP variations generates correspondent variations of just 6% on the real estate market; an increase in the share of purely financial investors (private equity firms focused on RE, pension funds, sovereign funds, etc.) in the domestic and international market; the opening and growth of markets of asset classes previously unexplored by professional investors (example: logistics warehousing); and the dissemination of structured real estate operations (sale & lease backs, build-to-suit, etc.). These transformations have increased the depth of the Brazilian real estate market but this experience has come at a cost, and adjustment must now be made to the market, which is sovereign and strives toward equilibrium regardless of the failures and successes of market participants. The greater depth of the Brazilian real estate market translates into greater diversity in financing and mechanisms for control, regulation and structuring, in addition to more investment options. The risks of excessive losses for the professional investor who can handle a market with this level of complexity are easily mitigated, creating opportunities to outperform the market average. It is believed that, in view of all of these factors, it is more likely that the market will improve (due to the factors mentioned) than a rapid decline. Previously, companies were focused on maximizing gains. Now, it is time to focus on protecting the downside.

5 Pictures Hélcio Bueno, partner of Construction Advisory, Ernst & Young; and Viktor Andrade Viktor Andrade, Christopher Moad and Duncan Osborne Mark Shoberg, Managing Director, UTIMCO; and Rodgers Harshbarger, Director of Investments, UNC Management Company Rodolfo Senra, Managing Director, Brio Investimentos Imobiliários; Paula Casarini, Vice President - São Paulo & CIVAS of Colliers International; and Stefan Ivanov, CEO, MRP International Viktor Andrade, Helmut Fladt, Vitor Senra, Randall Loker, Rodrigo Abbud, Managing Principal, VBI Real Estate, and Hernani Varella, partner, Tallento Management Executives observe surveys results Brochures distributed during the event Public

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