2Q16 EARNINGS RELEASE

Transcription

1 2Q16 EARNINGS RELEASE INVESTOR RELATIONS Carlos Alberto Correa CFO and Investor Relations Officer Murilo Hyai Investor Relations Manager Eduardo Oliveira Investor Relations Specialist Website: ir.sonaesierra.com.br Phone: +55 (11) CONFERENCE CALLS English August 4 th, :30 pm (BR) 11:30 am (US ET) 15:30 pm (GMT) Phone (New York): +1 (646) Phone (London): +44 (203) Phone (São Paulo): +55 (11) Replay: +55 (11) Portuguese August 4 th, :30 am (BR) 10:30 am (US ET) 14:30 pm (GMT) Phone: +55 (11) Replay: +55 (11)

2 SONAE SIERRA BRASIL REPORTS 2Q16 RESULTS São Paulo, August 3 rd, 2016 Sonae Sierra Brasil S.A. (BM&FBovespa: SSBR3), a leading Brazilian shopping mall developer, owner, and manager, announces its results for the second quarter of 2016 (2Q16). HIGHLIGHTS Net revenue totaled R$82.3 million in 2Q16, growing 2.9% when compared to 2Q15. In 1H16 the consolidated net revenue also grew 2.9% y-o-y, at R$165.9 million. Rental revenue totaled R$76.9 million in the quarter, a 3.2% increase over 2Q15 and in the first half of 2016 rent revenue totaled R$154.4 million, growing 4.9% over the same period of NOI reached R$79.7 million in 2Q16, a 5.0% increase over the same period of last year. In 1H16, NOI reached R$159.4 million, a 4.5% growth y-o-y. EBITDA was R$53.1 million in 2Q16, 5.8% lower than in 2Q15. EBITDA totaled R$117.1 million in the first six months of 2016, increasing 2.6% over 1H15. FFO totaled R$31.1 million in 2Q16, 11.6% below 2Q15. In 1H16, FFO recorded a 7.5% decrease from the same period of 2015, at R$66.2 million. Occupancy in our mature portfolio improved from 1Q16, reaching 98.1% while overall occupancy also improved to 93.6% in 2Q16. Occupancy costs of our tenants slightly decreased from 1Q16, to 10.1%. Same-store rents (SSR) continued to increase in 2Q16, growing 4.4% compared to 2Q15. In 1H16, the index reported a 6.2% growth over the same period of Same-store sales (SSS) decreased by 1.7% in 2Q16 compared to 2Q15, affected by the slowdown in consumption. In the first half of 2016, SSS decreased by 1.2% y-o-y. 2

3 FINANCIAL AND OPERATIONAL PERFORMANCE Financial Indicators (R$ million) 2Q16 2Q15 1H16 1H15 Net Revenue % % EBITDA % % EBITDA Margin 64.5% 70.5% -600 bps 70.6% 70.8% -23 bps FFO % % FFO Margin 37.8% 44.0% -623 bps 39.9% 44.4% -448 bps Net Operating Income (NOI) % % NOI Margin 87.7% 88.6% -85 bps 88.2% 89.0% -89 bps Operating Indicators 2Q16 2Q15 1H16 1H15 Total GLA ('000 sqm) % % Owned GLA ('000 sqm) % % Number of Shopping Malls % % Sales (R$ million) 1, , % 2, , % Sales/sqm (monthly average) % % Occupancy Rate 93.6% 95.9% -227 bps 93.6% 95.9% -227 bps Occupancy Rate for Mature Malls 98.1% 98.5% -44 bps 98.1% 98.5% -44 bps Occupancy Cost (% of sales) 10.1% 9.5% 61 bps 10.1% 9.5% 61 bps Same Store Sales (SSS) % % Same Store Rents (SSR) % % Late Payment (25 days) 6.90% 4.65% 225 bps 5.91% 4.38% 154 bps Key Financial Indicators (R$ million) Net Revenue NOI +2.9% +5.0% Q12 2Q13 2Q14 2Q15 2Q16 2Q12 2Q13 2Q14 2Q15 2Q16 EBITDA FFO -5.8% -11.6% Q12 2Q13 2Q14 2Q15 2Q16 2Q12 2Q13 2Q14 2Q15 2Q16 3

4 Parque D. Pedro Shopping Uberlândia Shopping Shopping Plaza Sul 4

5 MANAGEMENT COMMENTS Performance and Positioning In spite of a weak consumption environment and a reduction in owned GLA (due to the sale of one asset), Sonae Sierra Brazil continued to post resilient results in this quarter. Our revenues continue to grow despite higher cost pressure. To face this pressure, we have expanded our efforts to make our operations even more efficient and, at the same time, help our tenants to face the current difficult economic situation. The result of this strategy is the reduction of costs and expenses allied with our tenants occupancy cost stabilization, which ended the quarter at 10.1%, lower than the recorded in the first quarter of As we have said over the past few quarters, we have focused our efforts on improving the operation performance of our assets, especially our three newest malls. The first results can be perceived by the strong sales growth in Uberlândia Shopping and Boulevard Londrina Shopping, where sales increased 16% y-o-y in 2Q16. The sales of tenants in our nine assets totaled R$1.1 billion in 2Q16, in line with the reported in the same period last year. Our leasing team remains very focused and active, so that the occupancy in our malls closed the quarter at 93.6% compared to 93.4% at the end of 1Q16, despite the challenging current scenario. The same-store rents continued to grow, increasing 4.4% in the quarter. On the financial side, our net revenues increased 2.9% in 2Q16 compared to 2Q15, while the rental income grew 3.2%. Excluding Boavista Shopping, sold during the first quarter of 2016, the rental income increased 6.7% y-o-y. But even with the growth in revenues growth, EBITDA showed a decrease of approximately 5.8% y-o-y, to R$53.1 million and FFO totaled R$31.1 million, affected by much larger provisions for bad debts in this quarter. Finally, our balance sheet remains one of the strongest in the industry, allowing us to be in a very comfortable position to face the current crisis and also to take advantage of potential growth opportunities that may arise. We ended June 2016 with R$230 million in cash and net debt of R$593.3 million, or 2.5 times consolidated EBITDA for the last twelve months. 5

6 Outlook As expected, the first half of 2016 was quite challenging given the serious crisis in which the country finds itself, but the Brazilian economy began to show some signs of improvement in June, as the consumer confidence index recorded its highest level since January 2015, the stabilization in unemployment and decline in inflation. It is still early to say that this is a sign of an economic recovery, however, considering the historical trend, we believe that the second half of the year should bring some stabilization to the level of consumption. As we did recently we will continue to develop projects that extract the maximum value from our mature malls namely tenant mix improvements, expansions and also actions that generate costs and expenses savings. At the same time, we are confidant on the future results to be delivered from our recent services centralization initiative on our competitiveness and efficiency. We are convinced that our premium and dominant portfolio is resilient to support us at these challenging times. On the other hand, it is clear that our newest assets have high value creation potential will propel us up in future growth cycles. Management 6

7 2Q16 PORTFOLIO At the end of 2Q16 and after the sale of Boavista Shopping, our portfolio was comprised of nine operating malls, totaling thousand sqm of total GLA and thousand sqm of owned GLA. Total assets under management totaled thousand sqm of GLA. Operating Shopping Centers Shopping Metrópole São Bernardo do Campo (SP) % % Franca Shopping Franca (SP) % % Parque D. Pedro Shopping Campinas (SP) % % Shopping Plaza Sul São Paulo (SP) % % Shopping Campo Limpo São Paulo (SP) % % Manauara Shopping Manaus (AM) % % Uberlândia Shopping Uberlândia (MG) % % Boulevard Londrina Shopping Londrina (PR) % % Passeio das Águas Shopping Goiânia (GO) % % Total 1, % % Total excluding New Malls* 98.1% Managed Third-party Shopping Centers Penha Shopping São Paulo (SP) Total Assets Under Management 2, City City *Uberlândia, Boulevard Londrina and Passeio das Águas shopping centers Stores Stores Total GLA ('000 sqm) Total GLA ('000 sqm) Ownership Owned GLA ('000 sqm) Occupancy (% GLA) 7

8 OPERATING PERFORMANCE Shopping Centers Tenants Sales Total tenant sales in Sonae Sierra Brasil s operating malls totaled R$1.1 billion in 2Q16, a slight decrease over 2Q15. Shopping Center Tenant Sales (R$ million) -0.3% 2,107 2, has been a tough year for the retail sector, as demonstrated by the 7.3% contraction in retail sales volume as of May 2016, according to IBGE. Thus, this 1,082 1,079 recessionary environment 2Q15 2Q16 1H15 1H16 has a negative impact on tenants sales. In the first two months of the quarter, sales had a similar performance to 1Q16. However, June sales reversed the downward trend and showed some encouraging results, with some malls registering double-digit sales growth, led by Boulevard Londrina, which reported a 19% sales increase in the month when compared to June Industrial cities like Manaus, São Bernardo do Campo and Franca have been hit by a stronger than average slowdown in consumption, affecting tenants sales in our malls in those cities. On the other hand, Uberlândia and Boulevard Londrina continue to report very positive sales growth. +0.0% Shopping Center Tenant Sales (R$ thousand) 2Q16 2Q15 1H16 1H15 Shopping Metrópole 84,179 88, % 158, , % Franca Shopping 50,305 52, % 99, , % Parque D. Pedro Shopping 344, , % 674, , % Shopping Plaza Sul 107, , % 203, , % Shopping Campo Limpo 87,927 91, % 169, , % Manauara Shopping 166, , % 340, , % Uberlândia Shopping 76,184 70, % 148, , % Boulevard Londrina Shopping 70,867 61, % 135, , % Passeio das Águas Shopping 90,863 90, % 178, , % Total 1,078,945 1,081, % 2,107,701 2,107, % 8

9 Same-store Sales (SSS) Same-store sales (SSS) continued to be impacted by the consumption slowdown. As a result, SSS decreased by 1.7% in 2Q16 compared to the same period of 2015, totaling R$921/sqm per month, a lower decrease than in the previous quarter. Anchors SSS were impacted by the better performance of fashion tenants, whose SSS totaled 3.0% in the quarter, helped by a harsher than expected winter. On the other hand, electronics, home appliances, and furniture anchors continue to post sales contraction. Leisure tenants had another good movie season, although lower than 2Q15 season, which was heavily influenced by an exceptional crop of blockbusters. Same-Store Sales (SSS) Q15-1.7% 2Q16 Satellite tenants continue to be affected by the recessionary environment and still presented sales decrease. Meanwhile one can witness in the core activities a clear stabilization in terms of sales decrease. Same-Store Sales (SSS) 2Q16 2Q15 1H16 1H15 Satellite 1, , % 1, , % Anchor % % Leisure % % Total % % Same-store Rents (SSR) Even with the tough environment and its severe effects on the retail sector, our SSR continues to grow, increasing 4.4% compared to the same period of Among our newer malls, the highlight was Passeio das Águas, with double-digits SSR in the quarter, influenced by its continuous ramp up. Among our mature malls, Parque D. Pedro was once again the highlight, also with double-digits SSR, followed by Plaza Sul. Same-Store Rents (SSR) Q15 4.4% 2Q16 Same-Store Rents (SSR) 2Q16 2Q15 1H16 1H15 Satellite % % Anchor % % Leisure % % Total % % 9

10 Occupancy rate Occupancy rate in the mature portfolio improved to 98.1% of GLA at the end of 2Q16. Including our younger malls, the overall occupancy rate also improved, reaching 93.6%. 95.9% Occupancy Rate (%) 93.3% 93.2% 93.4% 93.6% 98.1% In 2Q16, despite the ongoing adverse economic environment, we were able to improve our occupancy levels and deliver another strong leasing activity, closing the quarter with 74 new 2Q15 3Q15 4Q15 1Q16 2Q16 2Q16 w/o New Malls* * Uberlândia, Boulevard Londrina and Passeio das Águas shopping centers approved proposals, representing an increase of 72% over the same period of The improvement in the leasing activity is a certain sign of confidence growth. Also, the adverse consumption scenario has created opportunities to replace underperforming tenants and to improve tenant mix. Occupancy cost Occupancy costs of tenants totaled 10.1% of sales in 2Q16, representing a slight decrease from the previous quarter. This quarter s slight reduction in occupancy cost reflects our commitment to cost savings initiatives to help tenants. 9.5% Occupancy Cost (%) 10.2% 10.1% 10.0% 9.7% 2Q15 3Q15 4Q15 1Q16 2Q16 10

11 Late-payments (25-day late payments) The late-payment rate registered an increase over the previous quarter, reaching 6.90%. Late payments are being affected by the negative environment that reduced the tenants sales, thus impacting their capacity to comply with their rent obligations. Late Payment (%) 6.90% 4.20% 3.36% 3.67% 4.92% 2Q15 3Q15 4Q15 1Q16 2Q16 11

12 FINANCIAL PERFORMANCE Statutory Accounts The consolidated financial and operating information outlined below is based on accounts prepared in accordance with accounting policies adopted in Brazil as well as the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board IASB and present a comparison of results obtained in 2Q16 with the same period of the previous year. Therefore, the consolidated financial information includes 100% of the results of Parque D. Pedro Shopping. Revenues In spite of a 2.2% decrease in owned GLA, the Company s gross revenue totaled R$97.0 million in 2Q16, growing 5.3% over 2Q15. Revenues (R$ million) 2Q16 2Q15 1H16 1H15 Rent % % Rent contract straight-lining % % Service revenue % % Parking revenue % % Key Money % % Other revenues % % Total Gross Revenues % % Rental revenue growth was led by a 4.7% increase in fixed rental revenue, once again led by Parque D. Pedro Shopping and by our younger malls, especially Uberlândia Shopping. On the other hand, turnover rents decreased by 7.2% over 2Q15 still impacted by tenants sales contraction, as shown in page 8 of this report. Service revenue decreased by 4.8% as a result of cost savings initiatives and the termination of one management service contract. Parking revenue totaled R$9.1 million in 2Q16 compared to R$8.6 million in 2Q15, a 4.9% increase, led by higher parking fees in some malls, in spite of a promotional campaign of free of charge parking in Uberlândia and in Boulevard Londrina shopping centers initiated in this quarter. Key money revenue totaled R$3.0 million in the quarter, increasing 28.2% over 2Q15. Other revenues totaled R$1.9 million versus R$0.2 million in 2Q15, affected by a fee charged to a new parking operator. 12

13 Gross Revenue (R$ million) +5.3% +3.2% % -4.8% +28.2% % Rent + Straight lining Parking revenue Service revenue Key Money Other revenue Total Gross Revenue 2Q15 2Q16 Gross Revenue Breakdown in the Quarter 3.1% 2.0% Rent + Rent contract straight-lining Parking revenue Service revenue Key Money Other revenue 9.3% 6.3% 79.3% 5.9% 7.0% 87.1% Fixed Rent Revenue Turnover Rent Revenue Kiosks and Merchandising 13

14 Costs and Expenses Costs and Expenses totaled R$30.2 million in 2Q16, 14.3% higher than in 2Q15, impacted by higher provisions for bad debts and higher costs with vacant stores. In view of the retail sector slowdown and higher late payments, we have increased our provisions for bad debts in this quarter, which totaled R$5.0 million. Costs with vacant stores are still important, but temporary, burden to our results, reporting a 15.0% increase over the same period of last year. On the other hand, costs of contractual agreements with tenants registered, once again, a reduction when compared to the same period of last year, decreasing 8.6%, positively influenced by the reduction of these costs in Passeio das Águas. We have also been seeking greater operational efficiency and as a result, personnel costs reported a 5.4% decrease in 2Q16. Costs and Expenses (R$ million) 2Q16 2Q15 1H16 1H15 Depreciation and amortization % % Personnel % % External services % % Occupancy cost (vacant stores) % % Cost of contractual agreements with tenants % % Provision for bad debts % % Other % % Total % % Classified as: Cost of rentals and services % % Personnel % % External services % % Occupancy cost (vacant stores) % % Cost of contractual agreements with tenants % % Other % % Operating expenses % % Personnel % % Depreciation and amortization % % External services % % Provision for bad debts % % Other % % Total % % 14

15 Changes in Fair Value of Investment Properties Sonae Sierra Brasil records the investment properties at fair market value. The appraisals are performed biannually by Cushman & Wakefield (2Q and 4Q). In 2Q16, the recorded valuation totaled a gain of R$35.6 million, versus a gain of R$99.7 million recorded in 2Q15. Net Financial Result The consolidated net financial result in 2Q16 was a net financial expense of R$15.2 million, representing a 7.9% decrease over 2Q15 on the back of decreasing leverage level. In 1Q16, half of the 1 st series of the Company s debentures was amortized, leading to both lower financial income and expenses. We expect the net financial expenses to decrease even further in the coming quarters, due to expected decrease in interest rates and inflation. Net Financial Result (R$ million) 2Q16 2Q15 1H16 1H15 Financial Income % % Financial Expenses (24.4) (27.9) -12.5% (52.9) (58.0) -8.8% Total Financial Result - Net (15.2) (16.5) -7.9% (33.9) (34.9) -2.9% Net Income Net income attributed to shareholders totaled R$3.9 million in 2Q16. 15

16 Net Operating Income (NOI) NOI totaled R$79.7 million in 2Q16, a 5.0% increase over 2Q15. Even given the ongoing recession and the sale of Boavista Shopping, the y-o-y NOI growth in 2Q16 attests the resilience of our portfolio. NOI (R$ million) 2Q16 2Q15 1H16 1H15 Operating Revenues Rent % % Key money % % Parking revenue % % Other revenue % % Total Revenues % % Operating Costs External services (1.4) (0.7) 110.6% (1.8) (1.2) 53.7% Occupancy cost (vacant stores) (5.9) (5.2) 14.9% (12.5) (10.2) 22.3% Cost of contractual agreements with tenants (2.9) (3.2) -8.6% (5.4) (5.8) -7.0% Other (0.9) (0.8) 13.5% (1.7) (1.6) 10.0% (-) Total Operating Costs (11.1) (9.8) 13.9% (21.4) (18.8) 14.2% NOI % % NOI Margin 87.7% 88.6% -85 bps 88.2% 89.0% -89 bps EBITDA & FFO In 2Q16, EBITDA decreased 5.8% compared to 2Q15, to R$53.1 million, and EBITDA margin was 64.5%. Larger provisions for bad debts and higher costs with vacant units have been pressuring the Company s EBITDA. FFO totaled R$31.1 million in 2Q16, an 11.6% reduction compared to 2Q15 led by higher current taxes and lower EBITDA. FFO margin in the quarter was 37.8%. The reconciliation of operating income before financial results with EBITDA and FFO is presented as follows: EBITDA and FFO Reconciliation (R$ million) Net Revenue 2Q Q % 1H H % Operating income before financial result % % Depreciation and amortization % % Gains in fair value of invest. properties (36.1) (100.5) -64.1% (36.1) (100.5) -64.1% EBITDA % % EBITDA Margin 64.5% 70.5% -600 bps 70.6% 70.8% -23 bps EBITDA % % Net financial result (15.2) (16.5) -7.9% (33.9) (34.9) -2.9% Current income and social contribution taxes (6.8) (4.7) 44.8% (17.0) (7.8) 119.9% FFO % % FFO Margin 37.8% 44.0% -623 bps 39.9% 44.4% -448 bps 16

17 Cash & Financial Debt The Company s cash totaled R$230.2 million at the end of 2Q16, a 7.5% decrease from 1Q16, mainly as a result of the distribution of dividends in May, in the amount of R$34.8 million. The cash balance, available for investments in strategic growth opportunities, is invested in lowrisk, short-term, investment grade bank securities, at an average interest rate of 101.2% of CDI. The Company s total financial debt totaled R$823.4 million at the end of the quarter, and the corresponding amortization schedule is as follows: Financial Debt Amortization (R$ million) and beyond Net Financial Debt (R$ million) Short term Long term Total Debt Cash Net Debt 17

18 The R$593.3 million net debt represents 2.5 times the last-twelve-months consolidated EBITDA (or 3.3 times considering the proportional consolidation). 58% of the Company s debt is fixed or linked to the TR (Taxa Referencial) and 29% to inflation (IPCA). The remaining 13% is CDI-indexed. IPCA 29% Debt Profile CDI 13% Fixed 9% TR 49% Cost of Debt The Company s average cost of debt started already to decrease and it is expected to decrease further in the coming quarters. Contracted Debt Financing Remaining Term (years) Interest Rate (1) Balance as of 6/30/16 (R$ million) Manauara Shopping % 77.0 Metrópole Shopping - Expansion I 1.9 TR % 32.5 Uberlândia Shopping 9.3 TR % 59.8 Boulevard Londrina Shopping 9.3 TR % Passeio das Águas Shopping 7.0 TR % Debentures - 1 st series 0.6 CDI % 49.7 Debentures - 2 nd series 2.6 IPCA % Debentures - 2 nd series (2) 2.6 CDI % 54.5 Total Weighted Average % (1) Considering TR at 2.08% p.a., CDI at 14.13% p.a. and IPCA 2016E at 6.93%. (2) The Company contracted in August 2013 a derivative instrument (swap) of R$ 54.5 million at a rate of CDI %. 18

19 Management Accounts In accordance with accounting standards and policies adopted in Brazil and IFRS, the Company consolidates 100% of Parque D. Pedro Shopping, despite owning 51% of this mall and, on the other hand, it does not consolidate its Campo Limpo 20% stake. However, considering the relevance of those malls to the Company s results, we prepared proforma management accounts with the proportional consolidation of our assets. The operating results of this methodology are presented below: NOI (R$ million) 2Q16 2Q15 1H16 1H15 Operating Revenues Rent % % Key money % % Parking revenue % % Other revenue % % Total Revenues % % Operating Costs External services (1.4) (0.6) 143.2% (1.7) (1.0) 72.2% Occupancy cost (vacant stores) (5.6) (4.9) 14.6% (11.9) (9.7) 22.4% Cost of contractual agreements with tenants (2.8) (3.1) -11.7% (5.3) (5.8) -8.9% Other (0.1) (1.6) -94.0% (1.2) (2.2) -43.7% (-) Total Operating Costs (9.8) (10.2) -3.5% (20.0) (18.6) 7.6% NOI % % NOI Margin 86.7% 85.7% 106 bps 86.4% 86.9% -45 bps EBITDA and FFO Reconciliation (R$ million) Net Revenue 2Q Q % 1H H % Operating income before financial result % % Depreciation and amortization % % Gains in fair value of invest. properties 0.7 (83.0) % 0.7 (83.0) % EBITDA % % EBITDA Margin 57.9% 63.9% -609 bps 64.8% 65.2% -37 bps EBITDA % % Net financial result (15.7) (17.2) -8.8% (34.8) (36.0) -3.2% Current income and social contribution taxes (7.0) (4.9) 43.1% (17.3) (8.0) 115.5% FFO % % FFO Margin 24.3% 31.3% -699 bps 26.7% 32.7% -602 bps 19

20 FUTURE EXPANSIONS AND RENOVATIONS We have one project in the pipeline, the expansion and refurbishment of Franca Shopping, but works awaits better economic perspectives. Project Franca Shopping Expansion Location Franca (SP) Description Expansion and refurbishment Sonae Sierra Brasil Stake 100% Additional GLA ('000 sqm) 11.0 Expected Opening

21 GLOSSARY Anchor Store or Large Anchors: Well-known stores with special marketing and structural features that serve to attract consumers, assuring continuous visitor flows and uniform traffic in all areas of the mall. BM&FBOVESPA: BM&FBovespa S.A. Securities, Commodities and Futures Exchange. EBITDA: Operating income before financial result + depreciation and amortization gains from the fair value of investment properties. FFO (Funds from Operations): EBITDA +/- Net financial result current income and social contribution taxes. GLA (Gross Leasable Area): Equivalent to the sum total of all the areas available for leasing in the shopping malls. IFRS: International Financial Reporting Standards. IPCA: Consumer Price Index, published by the IBGE. Late Payment: The total financial amount of rents past due for more than 25 days, divided by the total financial amount of rents in the same period. NOI (Net Operating Income): Gross revenue from malls (excluding service revenue) + parking revenue mall operating expenses provisions for doubtful accounts. Occupancy Cost: Ratio (of the last twelve months) between total rent plus common charges and promotion fund paid by the tenants and total sales. Occupancy Rate: Ratio between leased area and total GLA of each mall at the end of each period. SSR (same-store rent): Relation between invoiced rent for the same tenants in the current period compared to previous period. SSS (same-store sales): Relation between sales of the same tenants in the current period compared to the previous period. Satellite Stores or Satellites: Small stores without special marketing or structural features located around the anchor stores and aimed at general commerce. Non-accounting information has not been reviewed by the external auditors. 21

22 APPENDICES Balance Sheet - ASSETS (R$ thousand) 6/30/16 3/31/16 CURRENT Cash and cash equivalents 230, , % Accounts receivable, net 36,363 33, % Taxes recoverable 6,955 11, % Prepaid expenses % Other credits 9,139 23, % Total current assets 282, , % Non-current assets held for sale 32,316 - N/A NON-CURRENT Long-term receivables Accounts receivable, net 18,354 17, % Taxes recoverable 26,262 25, % Loans to condominiums 27,055 27, % Deferred income and social contribution taxes 8,611 8, % Juducial deposits 24,998 24, % Other credits 4,971 4, % Total long-term assets 110, , % Investments 39,025 38, % Investment properties 4,368,324 4,361, % Fixed Assets 2,924 2, % Intangible Assets 3,858 4, % Total non-current assets 4,524,382 4,514, % TOTAL ASSETS 4,839,446 4,831, % 22

23 Balance Sheet: LIABILITIES (R$ thousand) 06/30/16 03/31/16 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT Loans and financing 76,186 72, % Debentures 55,876 49, % Domestic trade accounts payable 13,605 15, % Taxes payable 5,488 8, % Personnel, payroll taxes, benefits, and rewards 9,639 10, % Key money 5,378 6, % Dividends payable - 31, % Earnings payable 5,899 5, % Other payables 4,720 7, % Total current liabilities 176, , % NON-CURRENT Loans and financing 407, , % Debentures 284, , % Deferred revenue 2,101 2, % Deferred income and social contribution taxes 594, , % Provision for civil, tax, labor and pension risks 5,983 5, % Provisions for variable compensation 1,910 2, % Total non-current liabilities 1,296,351 1,297, % SHAREHOLDERS' EQUITY Capital stock 1,397,866 1,397, % Capital reserve 80,115 80, % Profit reserve 937, , % Retained earnings 22,592 18, % Equity attributable to shareholders 2,437,746 2,437, % Minority interests 928, , % Total Shareholders' Equity 3,366,304 3,327, % TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 4,839,446 4,831, % 23

24 Income Statement (R$ thousand, except earnings per share) 2Q16 2Q15 1H16 1H15 NET OPERATING REVENUE FROM RENT, SERVICES AND OTHER 82,323 79, % 165, , % COST OF RENT AND SERVICES (20,640) (19,810) 4.2% (40,449) (38,078) 6.2% GROSS PROFIT 61,683 60, % 125, , % OPERATING REVENUE (EXPENSES) General and administrative (9,577) (6,633) 44.4% (16,501) (14,122) 16.8% Personnel (149) (165) -9.7% (326) (328) -0.6% External services (1,378) (1,838) -25.0% (2,665) (3,792) -29.7% Provisions for bad debts (4,963) (1,752) 183.3% (7,809) (4,076) 91.6% Other administrative expenses (2,429) (2,208) 10.0% (4,359) (4,583) -4.9% Depreciation and amortization (658) (670) -1.8% (1,342) (1,343) -0.1% Taxes (89) (290) -69.3% (867) (629) 37.8% Equity income 1,323 1, % 2,143 2, % Change in fair value of investment properties 35,558 99, % 35,558 99, % Other operating revenue (expenses), net (403) 1,484 N/A 6,069 2, % Total operating revenue (expenses), net 26,812 96, % 26,402 90, % OPERATING INCOME BEFORE FINANCIAL RESULT 88, , % 151, , % Net financial result (15,192) (16,489) -7.9% (33,856) (34,873) -2.9% INCOME BEFORE INCOME AND SOCIAL CONTRIBUTION TAXES 73, , % 117, , % INCOME AND SOCIAL CONTRIBUTION TAXES Current (6,833) (4,720) 44.8% (17,048) (7,755) 119.8% Deferred (10,850) (33,519) -67.6% (11,484) (36,600) -68.6% Total (17,683) (38,239) -53.8% (28,532) (44,355) -35.7% NET INCOME 55, , % 89, , % INCOME ATTRIBUTABLE TO: Shareholders 3,873 69, % 22,592 88, % Minority interests 51,748 32, % 66,839 45, % Earnings per share % % 24

25 Cash Flow Six-month period ending on R$ thousand 6/30/2016 6/30/2015 CASH FLOW FROM OPERATING ACTIVITIES Net income for the period 89, ,142 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,342 1,343 Result value of property and equipment sold Gains on derivatives transactions, net (192) (1,479) Unbilled revenue from rentals (1,165) (1,986) Allowance for doubtful accounts 7,809 4,076 Reversal of civil, tax, labor, and social security risks 237 (354) Monetary adjustment of reserve for civil, tax, labor and social security risks Accrual for variable compensation 1,190 1,330 Deferred income tax and social contribution 11,484 36,600 Income tax and social contribution 17,048 7,755 Interest on borrowing, financing, debentures and acquisition of assets 52,628 57,662 Gains on disposals of investments (5,748) 0 Changes in fair value of investment properties (35,558) (99,714) Equity pick-up (2,143) (2,595) (Increase)/decrease in operating assets: Trade receivables (3,251) 14,340 Loans related to condominiums 1,026 (2,810) Recoverable taxes 1,245 (5,217) Prepaid expenses (78) (135) Escrow deposits (1,698) (389) Other 12,132 (23,006) Increase (decrease) in operating liabilities: Domestic trade accounts payable (6,991) (3,403) Taxes payable (16,079) (2,202) Personnel, payroll taxes, benefits and rewards (3,142) (2,842) Key money (2,749) (1,793) Payments of contingencies (212) (355) Other payables (2,345) (2,090) Cash provided by operating activities 114, ,536 Interest paid (44,084) (47,741) Income tax and social contribution paid (6,014) (9,039) Net cash provided by (used in) operating activities 64,478 50,756 CASH FLOW FROM INVESTING ACTIVITIES Restricted investments 0 (533) Acquisition or construction of investment property (11,535) (39,266) Acquisition of property and equipment (250) (470) Acquisition of intangible assets (111) (227) Sale of subsidiary, net of cash and other operating assets at sale 49,262 0 Dividends received 1,781 1,800 Net cash used in investing activities 39,147 (38,696) CASH FLOW FROM FINANCING ACTIVITIES Debentures paid - principal (47,750) 0 Loans and financing paid - principal (28,507) (29,017) Trade accounts payable - acquisition of assets paid 0 (9,132) Distributed earnings of real estate funds - non-controlling interests (27,562) (11,243) Dividends paid (34,773) (34,773) Net cash used in financing activities (138,592) (84,165) DECREASE IN CASH AND CASH EQUIVALENTS, NET (34,967) (72,105) CASH AND CASH EQUIVALENTS At the end of the period 230, ,831 At the beginning of the period 265, ,936 DECREASE IN CASH AND CASH EQUIVALENTS, NET (34,967) (72,105) 25

26 Pro-forma consolidated income statement considering the proportional consolidation of our malls 2Q16 SSB Adjustments* SSB Management (R$ thousand) (100% PDP) 2Q15 Δ 1H16 1H15 Δ NET OPERATING REVENUE FROM RENT, SERVICES AND OTHER 82,323 14,862 67,461 67, % 136, , % COST OF RENT AND SERVICES (20,640) (1,320) (19,320) (20,212) -4.4% (39,054) (37,922) 3.0% GROSS PROFIT 61,683 13,541 48,142 47, % 97,603 97, % OPERATING REVENUE (EXPENSES) General and administrative (9,577) (292) (9,285) (6,166) 50.6% (15,553) (12,759) 21.9% Personnel (149) 0 (149) (165) -9.7% (326) (328) -0.7% External services (1,378) (39) (1,339) (1,790) -25.2% (2,582) (3,642) -29.1% Provisions for bad debts (4,963) (727) (4,236) (1,898) 123.2% (7,115) (3,961) 79.6% Other administrative expenses (2,429) 474 (2,903) (1,643) 76.7% (4,188) (3,485) 20.2% Depreciation and amortization (658) 0 (658) (670) -1.7% (1,342) (1,343) -0.1% Taxes (89) 1 (90) (291) -69.1% (870) (631) 37.8% Equity income 1,323 1, N/A - - N/A Change in fair value of investment properties 35,558 36,271 (713) - N/A (715) 82,952 N/A Other operating revenue (expenses), net (403) (5) (398) 1,639 N/A 6,092 2, % Total operating revenue (expenses), net 26,812 37,298 (10,486) 78,138 N/A (11,045) 72,452 N/A OPERATING INCOME BEFORE FINANCIAL RESULT 88,495 50,839 37, , % 86, , % Net financial result (15,192) 474 (15,666) (17,180) -8.8% (34,829) (35,965) -3.2% INCOME BEFORE INCOME AND SOCIAL CONTRIBUTION TAXES 73,303 51,313 21, , % 51, , % INCOME AND SOCIAL CONTRIBUTION TAXES Current (6,833) 137 (6,970) (4,872) 43.1% (17,325) (8,038) 115.5% Deferred (10,850) 297 (11,147) (33,934) -67.2% (11,812) (37,054) -68.1% Total (17,683) 434 (18,117) (38,806) -53.3% (29,137) (45,092) -35.4% NET INCOME 55,620 51,748 3,872 69, % 22,592 88, % *Adjustments represent the exclusion of 49% of PDP's NOI, the inclusion of 20% of Campo Limpo and all consolidation effects Pro-forma consolidated gross revenue breakdown (Considering the proportional consolidation of our malls) (R$ million) 2Q16 2Q15 1H16 1H15 Rent % % Rent contract straight-lining % % Service revenue % % Parking revenue % % Key Money % % Other revenue % % Total Gross Revenue % % 26

27 Pro-forma Proportional Balance Sheet (R$ thousand) ASSETS 6/30/2016 3/31/2016 CURRENT Cash and cash equivalents 219, , % Accounts receivable, net 30,312 28, % Taxes recoverable 6,897 11, % Prepaid expenses % Other credits 8,566 22, % Total current assets 265, , % Non-current assets held for sale 32,316 - N/A NON-CURRENT Long-term receivables Accounts receivable, net 15,060 14, % Taxes recoverable 26,262 25, % Loans to condominiums 27,055 27, % Deferred income and social contribution taxes 8,569 8, % Juducial deposits 25,059 24, % Other credits 6,531 6, % Total long-term assets 108, , % Investment properties 3,507,063 3,537, % Fixed Assets 2,924 2, % Intangible Assets 3,858 4, % Total non-current assets 3,622,381 3,649, % TOTAL ASSETS 3,920,090 3,949, % 27

28 Pro-forma Proportional Balance Sheet (R$ thousand) LIABILITIES 3/30/16 3/31/16 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT Loans and financing 76,186 72, % Debentures 55,876 49, % Domestic trade accounts payable 12,163 13, % Taxes payable 5,221 8, % Personnel, payroll taxes, benefits, and rewards 9,639 10, % Key money 5,403 6, % Dividends payable - 31, % Earnings payable 1,559 - N/A Other payables 4,788 7, % Total current liabilities 170, , % NON-CURRENT Loans and financing 407, , % Debentures 284, , % Deferred revenue 2,116 2, % Deferred income and social contribution taxes 610, , % Provision for civil, tax, labor and pension risks 6,008 5, % Provisions for variable compensation 1,910 2, % Total non-current liabilities 1,311,510 1,312, % SHAREHOLDERS' EQUITY Capital stock 1,397,866 1,397, % Capital reserve 80,115 80, % Profit reserve 937, , % Retained earnings 22,592 18, % Total Shareholders' Equity 2,437,745 2,437, % TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 3,920,090 3,949, % 28

29 (Convenience Translation into English from the Original Issued in Portuguese) Sonae Sierra Brasil S.A. and Subsidiaries Quarterly Information (ITR) at June 30, 2016 and report on review of quarterly information

30 (Convenience Translation into English from the Original Issued in Portuguese) Report on review of quarterly information To the Board of Directors and Stockholders Sonae Sierra Brasil S.A. Introduction We have reviewed the accompanying parent company and consolidated interim accounting information of Sonae Sierra Brasil S.A. ("Company"), included in the Quarterly Information Form (ITR) for the quarter ended June 30, 2016, comprising the balance sheet at that date and the statements of income and comprehensive income for the quarter and six-month period then ended, and the statements of changes in equity and cash flows for the six-month period then ended, and a summary of significant accounting policies and other explanatory information. Management is responsible for the preparation of the parent company and consolidated interim accounting information in accordance with the accounting standard CPC 21 - Interim Financial Reporting, of the Brazilian Accounting Pronouncements Committee (CPC), and International Accounting Standard (IAS) 34 - Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as the presentation of this information in accordance with the standards issued by the Brazilian Securities Commission (CVM), applicable to the preparation of the Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim accounting information based on our review. Scope of review We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion on the interim information Based on our review, nothing has come to our attention that causes us to believe that the accompanying parent company and consolidated interim accounting information included in the quarterly information referred to above has not been prepared, in all material respects, in accordance with CPC 21 and IAS 34 applicable to the preparation of the Quarterly Information, and presented in accordance with the standards issued by the CVM. 2 PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brasil , Caixa Postal T: (11) ,

31 Sonae Sierra Brasil S.A. Other matters Statements of value added We have also reviewed the parent company and consolidated statements of value added for the six-month period ended June 30, These statements are the responsibility of the Company's management, and are required to be presented in accordance with standards issued by the CVM applicable to the preparation of Quarterly Information (ITR) and are considered supplementary information under IFRS, which do not require the presentation of the statement of value added. These statements have been submitted to the same review procedures described above and, based on our review, nothing has come to our attention that causes us to believe that they have not been prepared, in all material respects, in a manner consistent with the parent company and consolidated interim accounting information taken as a whole. Audit of prior-year information The Quarterly Information (ITR) referred to in the first paragraph includes accounting information corresponding to income, changes in equity, cash flows and added value for the quarter ended June 30, 2015, which were extracted from the Quarterly Information (ITR) for that quarter, and to the balance sheets as at December 31, 2015, which were extracted from the financial statements as at December 31, 2015, presented herein for comparison purposes. The review of the Quarterly Information (ITR) for the quarter ended June 30, 2015 and the audit of the financial statements for the year ended December 31, 2015 were conducted by other independent auditors, who issued unqualified review and audit reports thereon dated August 3, 2015 and February 25, 2016, respectively. São Paulo, August 1 st, 2016 PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 Marcelo Orlando Contador CRC 1SP217518/O-7 3

32 (Convenience Translation into English from the Original Issued in Portuguese) SONAE SIERRA BRASIL S.A. AND SUBSIDIARIES BALANCE SHEET AS OF JUNE 30, 2016 (In thousands of Brazilian Reais - R$) Company Company ASSETS Note 06/30/16 12/31/15 06/30/16 12/31/15 LIABILITIES AND EQUITY Note 06/30/16 12/31/15 06/30/16 12/31/15 CURRENT ASSETS CURRENT LIABILITIES Cash and cash equivalents 5 e 29 68, , , ,145 Loans and financing ,186 73,483 Trade receivables, net ,363 40,398 Debentures 13 55,876 66,218 55,876 66,218 Recoverable taxes ,955 14,365 Domestic trade accounts payable ,605 20,596 Prepaid expenses Taxes payable ,488 10,533 Other receivables ,139 20,116 Personnel, payroll taxes, benefits, and rewards ,639 11,166 Total current assets 68, , , ,059 Key money ,378 6,399 Dividends payable - 31,386-31,386 NONCURRENT ASSETS HELD FOR SALE ,316 - Earnings payable - - 5,899 4,791 Other payables ,720 17,066 NON-CURRENT ASSETS Total current liabilities 56,155 98, , ,638 Restricted investments Trade receivables, net ,354 17,712 NON-CURRENT LIABILITIES Recoverable taxes 7 26,262 20,097 26,262 20,097 Loans and financing , ,553 Loans related to condominiums ,055 28,081 Debentures , , , ,093 Deferred income tax and social contribution ,611 9,250 Key money ,101 3,829 Escrow deposits 15 2,400 2,340 24,998 23,300 Deferred income tax and social contribution , ,547 Other receivables ,971 6,126 Provision for contingencies 15 e 29 2,400 2,323 5,983 5,917 Investments 9 e 29 2,683,681 2,641,786 39,025 38,663 Accruals for variable compensation ,910 2,335 Investment properties ,368,324 4,409,556 Total non-current liabilities 286, ,416 1,296,351 1,350,274 Property, plant and equipment - - 2,924 3,403 Intangible assets - - 3,858 4,595 EQUITY 17 Total non-current assets 2,712,343 2,664,223 4,524,382 4,560,783 Capital 1,397,866 1,397,866 1,397,866 1,397,866 Capital reserves 80,115 80,115 80,115 80,115 Earnings reserves 937, , , ,560 Retained earnings 22,592-22,592 - Equity attributable to owners of the Company 2,437,746 2,418,541 2,437,746 2,418,541 Non-controlling interests , ,389 Total equity 2,437,746 2,418,541 3,366,304 3,308,930 TOTAL ASSETS 2,780,638 2,835,095 4,839,446 4,900,842 TOTAL LIABILITIES AND EQUITY 2,780,638 2,835,095 4,839,446 4,900,842 The accompanying notes are an integral part of these interim financial information. 4

33 (Convenience Translation into English from the Original Issued in Portuguese) SONAE SIERRA BRASIL S.A. AND SUBSIDIARIES STATEMENT OF INCOME FOR THE PERIOD ENDED JUNE 30, 2016 (In thousands of Brazilian Reais - R$, except earnings per share) Note 04/01 a 06/30/16 01/01 a 06/30/16 Company 04/01 a 06/30/15 01/01 a 06/30/15 04/01 a 06/30/16 01/01 a 06/30/16 04/01 a 06/30/15 01/01 a 06/30/15 NET OPERATING REVENUE FROM RENTALS, SERVICES, AND OTHERS , ,866 79, ,198 COST OF RENTALS AND SERVICES (20,640) (40,449) (19,810) (38,078) GROSS PROFIT , ,417 60, ,120 OPERATING (EXPENSES)/INCOME General and administrative expenses 19 (502) (1,286) (499) (1,277) (9,577) (16,501) (6,633) (14,122) Tax expenses (19) (146) (8) (93) (89) (867) (290) (629) Equity pick-up 29 e 9 12,834 41,895 77, ,942 1,323 2,143 1,801 2,595 Changes in fair value of investment properties ,558 35,558 99,714 99,714 Other operating income, net 20 (212) (212) - - (403) 6,069 1,484 2,692 Total income (expenses) from operations, net 12,101 40,251 77, ,572 26,812 26,402 96,076 90,250 OPERATING INCOME BEFORE FINANCIAL EXPENSES 12,101 40,251 77, ,572 88, , , ,370 FINANCIAL EXPENSES, NET 21 (8,227) (17,658) (7,602) (16,762) (15,192) (33,856) (16,489) (34,873) INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION 3,874 22,593 69,484 88,810 73, , , ,497 INCOME TAX AND SOCIAL CONTRIBUTION Current 22 (1) (1) - - (6,833) (17,048) (4,720) (7,755) Deferred (10,850) (11,484) (33,519) (36,600) Total (1) (1) - - (17,683) (28,532) (38,239) (44,355) NET INCOME FOR THE PERIOD 3,873 22,592 69,484 88,810 55,620 89, , ,142 NET INCOME ATTRIBUTABLE TO Owners of the Company ,873 22,592 69,484 88,810 Non-controlling interests ,748 66,839 32,024 45,332 BASIC AND DILUTED EARNINGS PER SHARE - R$ The accompanying notes represent an integral part of these interim financial information. 5

34 (Convenience Translation into English from the Original Issued in Portuguese) SONAE SIERRA BRASIL S.A. AND SUBSIDIARIES STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD ENDED JUNE 30, 2016 (In thousands of Brazilian Reais - R$) Company 04/01 a 06/30/16 01/01 a 06/30/16 04/01 a 06/30/15 01/01 a 06/30/15 04/01 a 06/30/16 01/01 a 06/30/16 04/01 a 06/30/15 01/01 a 06/30/15 NET INCOME FOR THE PERIOD 3,873 22,592 69,484 88,810 55,620 89, , ,142 Other comprehensive income TOTAL OF COMPREHENSIVE INCOME 3,873 22,592 69,484 88,810 55,620 89, , ,142 NET INCOME ATTRIBUTABLE TO Owners of the Company ,873 22,592 69,484 88,810 Noncontrolling interests ,747 66,839 32,024 45,332 The accompanying notes are an integral part of these interim financial information. 6

35 (Convenience Translation into English from the Original Issued in Portuguese) SONAE SIERRA BRASIL S.A. AND SUBSIDIARIES STATEMENT OF CHANGE IN EQUITY (COMPANY AND CONSOLIDATED) FOR THE PERIOD ENDED JUNE 30, 2016 (In thousands of Brazilian Reais - R$, except value per share) Capital reserves Earnings reserves Total equity Share Share Earnings Additional attributable Issuance subscription Legal retention Unrealized dividends Retained to owners Noncontrolling Total Capital costs premium reserve reserve earnings proposed earnings of the parent interests equity BALANCES AS OF DECEMBER 31, ,397,866 (16,083) 96,198 49, , , ,352, ,639 3,169,447 Net income for the period ,810 88,810 45, ,142 Dividends arising from operation of Fundo de Investimento Imobiliário Shopping Parque D. Pedro and Fundo de Investimento Parque D. Pedro Shopping Center (10,879) (10,879) BALANCES AS OF JUNE 30, ,397,866 (16,083) 96,198 49, , ,732-88,810 2,441, ,092 3,292,710 BALANCES AS OF DECEMBER 31, ,397,866 (16,083) 96,198 54, , ,412 3,387-2,418, ,389 3,308,930 Net income for the period ,592 22,592 66,839 89,431 Dividends distributed in the period (R$0.04 per share) (3,387) - (3,387) - (3,387) Dividends arising from the operations of Fundo de Investimento Imobiliário Shopping Parque D. Pedro and Fundo de Investimento Parque D. Pedro Shopping Center (28,670) (28,670) BALANCES AS OF JUNE 30, ,397,866 (16,083) 96,198 54, , ,412-22,592 2,437, ,558 3,366,304 The accompanying notes are an integral part of these interim financial information. 7