Strategy and Competitive Advantages

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Our Strategy

Our strategy is to strengthen and expand our leadership in the shopping center industry in the regions in which we operate by (i) developing the best assets in the best locations, (ii) continuing to organize our operations in well-defined regions, or clusters and (iii) continuing to strengthen our brand. We believe we will be able to continue with our expansion on a sustainable and profitable basis, by adding value for our shareholders in line with or above our expectations and estimates. Our strategy mainly consists of the following:

Maintaining the quality of our current portfolio. We believe that our current portfolio provides us with a solid basis for our operations and we plan to continue to ensure that our properties are the best assets in the shopping center industry in order to better serve our target customers and maintain our brand image among upper- and upper-middle-income individuals in the Southeastern, Southern and Midwestern regions of Brazil. Therefore, we will seek to:

  • Maintain and improve all facilities and equipment in our portfolio. In order to maintain our high-quality assets, we will continuously improve all facilities and equipment in our current portfolio in order to ensure that the architecture, store mix and services stay well maintained and reflect the latest customer and retail trends.
  • Further develop and expand our brand. We have worked over the past 30 years on the development of a strong brand and we will continue doing so. The brand "Iguatemi" represents high quality and a diversified mix of products and services designed to appeal to our target customers. Through several marketing steps, our intelligent approach to retail and customer trends, we seek to maintain our brand position and its association with the high quality and excellence required by our target customers.
  • Expand our current shopping centers. We may expand several shopping centers which are already in operation. Expansions are generally subject to lower risk and offer higher returns, as renovations tend to (i) increase the number of stores, (ii) add value to the shopping center and (iii) generate additional customer foot traffic, maintaining or increasing our shopping centers‘ results of operations.

Expanding on a sustainable and profitable basis. Our investment plan seeks sustainable and profitable expansion in the long term and is mainly focused on generating value for our shareholders, to be implemented in part by:

  • Defining the design, establishment and management of new shopping centers. We believe that the development of new shopping centers will allow the creation of modern facilities that reflect our brand and that are specifically developed to meet the needs of our target customers. Therefore, we will continue to carefully select the location of new shopping centers by adopting diverse architecture and providing a mix of high-quality stores, operated by national and international brands.
  • Conceiving, incorporating and administrating our new Outlet Premium. Our activities in the outlet premium segment are aligned with our business strategy, our expertise and our upper- and upper-middle-income class focus. We believe this segment will be one of the drivers of our growth in the years to come.
  • Continuing to implement multi-purpose commercial and residential real estate projects. We will continue to maximize potential revenue from our shopping centers through the implementation of supplementary multi-purpose projects, such as commercial towers and multi-purpose residential projects near the shopping centers. These projects, which can be undertaken with strategic partners, complement our shopping centers, increasing the attractiveness of both developments. We will seek to utilize a multi-purpose model in our future developments.
  • Increasing our ownership interest in our shopping centers. We believe that the acquisition of additional ownership interest in the shopping centers in which we already hold ownership interests will improve our revenue without materially increasing our risks, as we already manage these shopping centers. Currently, we hold an average ownership interest of 57.5% in our shopping centers, and we intend to acquire additional ownership interests in these shopping centers from our partners to the extent that such new opportunities arise.
  • Selectively acquiring ownership interests in existing shopping centers and other companies that operate in the shopping center industry. The shopping center industry in Brazil is highly fragmented and we believe that new opportunities will arise as the industry strengthens. We intend to expand our portfolio through the acquisition of ownership interests in shopping centers in which we do not currently hold an ownership interest and in companies operating in the shopping center industry, which we believe should improve our strategic position.

Competitive Strengths

We believe that our main competitive strengths are:

A portfolio of shopping centers located in high-income areas which we believe represents quality for our target customers. Our portfolio consists of shopping centers that (i) we believe represents quality for our target customers, composed mainly of upper- and upper-middle-income individuals, who are characterized by their loyalty and desire for quality, and (ii) are strategically located in the Southeastern, Southern and Midwestern regions of Brazil which have, according to IBGE data of 2010, greater purchasing power and potential consumption per capita. We believe that we are considered the leading shopping center provider for upper- and upper-middle-income individuals in the city of São Paulo and in the interior of the state of São Paulo, which together account for 33.1% of Brazilian GDP in 2010. In addition, we are located in large cities such as Porto Alegre, Florianópolis and Brasília, where we believe we are recognized for our quality by our target customers. Our shopping center portfolio includes, among others, Iguatemi São Paulo, which is the most expensive rent per square meter in Latin America, as well as Iguatemi Porto Alegre and JK Iguatemi, which are among the ten shopping centers with the most expensive rent per square meter in Brazil, according to information provided by a Cushman & Wakefield report released in 2012 and by other publicly-held companies operating in the industry.

Continuous history of sustainable and profitable expansion based on a well-defined strategy. Throughout our history, and particularly since our initial public offering in 2007, we believe that we have demonstrated the capacity to pursue and execute our growth strategy, having more than doubled own GLA, from approximately 121,000 square meters in 2007 to approximately 379,804 square meters in 2013, through the acquisition of three shopping centers and 18 transactions that increased our ownership interests in shopping centers which already formed part of our portfolio. We have also developed eight greenfield projects and carried out five shopping center expansions. These actions increased our adjusted EBITDA from R$73.4 million in 2006 to R$298.2 million (our 2012 EBITDA was adjusted for discontinued operations, excluding the net results from the sale of Iguatemi Rio of R$108.2 million, which was sold in June 2012), while total sales at the stores in our shopping centers increased by 126.7%, from R$3,653.0 million in 2006 to R$8,280.0 million in 2012. We believe we have achieved these results due to our well-defined strategy, which over a number of years has focused on specific goals, such as:

  • operating in well-defined regions, or clusters, in order to increase our commercial relationships

and align the logistics of our store owners;

  • utilizing distinguished architecture, with projects developed by internationally renowned architects in commercial real estate;
  • mix of high-quality stores, with brands who are renowned both in Brazil and abroad; and
  • maintaining a solid and strong cash flow arising from our lease agreements, which consist of monthly minimum rent annually adjusted for inflation plus percentage of revenue based on store sales, and with our solid debt levels and capital structure management.

Highly recognized brand, capable of adding value to land owners, partners and domestic and international brands. We believe we are the only company in the shopping center industry in Brazil that has created a highly recognized, unified brand, with wide reliability and reputation, and which is highly recognized in the domestic and international markets. Since 2008, BrandAnalytics has classified the "Iguatemi" brand as one of the 50 most valuable brands in Brazil among all industries, in a list that includes not only domestic brands, but also international brands operating in Brazil. We are the sole brand in the shopping center industry included in this list. In addition, we have significantly increased our position in this list over the years. We believe this increase has been a direct result of the execution of our strategy, which resulted in the creation of a portfolio of shopping centers with a diversified store mix while retaining consistency in the services that we provide. Our brand provides us with differentiated capacity to (i) attract land owners and investment partners for new development projects; (ii) attract lessees, including international brands interested in operating in Brazil; and (iii) achieve low levels of vacancies in our shopping centers. As a result, we have been able to increase the number of customers at our shopping centers and commercial towers, also increasing the value of our other commercial and residential real estate developments which are located within the vicinities of our shopping centers. Our brand is an essential element of our value and differentiates us from our competitors.

Pioneering and innovative culture. We believe our history in the shopping center industry is marked by several pioneering and innovative steps with regard to our store mix, the range of products offered and the services provided to our customers, our development of commercial and residential real estate projects and our institutional and corporate governance. In terms of store mix and services, we believe we were the first to bring international brands into the Brazilian retail market and the first to provide valet parking services and advance purchase of movie tickets in our shopping centers. With respect to the development of commercial and residential real estate projects, we believe we were the first to launch a multi-purpose commercial project at Market Place, in 1995, the first to launch a shopping center in the interior of the state of São Paulo, Iguatemi Campinas, in 1980, and the first to open a shopping center in Brazil‘s southern region, Iguatemi Porto Alegre, in 1983. With respect to institutional and corporate culture governance, we were the first company in the industry to publicly offer our shares and list them on the BM&FBOVESPA, in 2007. Our innovative approach in the shopping center industry reinforces our ability to ensure the loyalty of our customers and create lasting partnerships with our brands, suppliers and partners. A recent example of our innovative approach is our shopping center JK Iguatemi, which opened in June 2012. JK Iguatemi contains 23 international brands, which did not previously operate in Brazil, as well as 21 domestic brands that operate exclusively in shopping centers.

Synergies between our shopping centers and commercial and residential real estate developments. By developing our shopping centers, we seek to improve our revenue and realize the maximum potential of our real estate. We achieve this through the development of multi-purpose commercial and residential real estate projects, in which surplus portions of our developments are sold or exchanged for the development of commercial and residential real estate. Our first multi-purpose project was Market Place, which opened in 1995. Currently, all of our greenfield projects are being developed to be multi-purpose and all our other shopping center expansions are being adapted to be multi-purpose. There is significant capacity to use the synergies in multi-purpose projects, including, among other benefits, greater appreciation of our developments and the surrounding real estate, increasing the number of customers and, therefore, the sales in our shopping centers.

Intrinsic competitive strength to operate our new Outlet Premium in Brazil. According to a study conducted by Jones Lang LaSalle, more than 50% of the Brazilian customers who visit shopping centers are upperand upper-middle-income individuals. In the case of Outlet Premium, our target customers are exclusively upperand upper-middle-income individuals who look for specialized brands but at discounted prices. We believe we have an intrinsic competitive advantage due to (i) our relationship with major national and international brands, (ii) the Iguatemi brand‘s position in the market, and (iii) strong presence in the major cities in the Southeastern and Southern region of Brazil that have a higher concentration of upper- and upper-middle-income individuals who value specialized brands.

Specialized staff and motivated professionals. Our motivated work-force with recognized experience in the retail and shopping center industries has driven our expansion and improved our revenue, even through adverse economic conditions. We have sought to align the interests of our management and employees with our shareholders‘ interests. Our policies aim to retain qualified professionals by creating management tools to improve efficiency, creating additional opportunities for internal promotion, as well as providing sufficient training programs, performance evaluations and suitable compensation of our professionals.

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