Santander Brazil Income Properties July 2010

Latin American Equity Research Sector Report
São Paulo, July 13, 2010 Brazil – Construction and Real Estate
BRAZILIAN INCOME PROPERTIES JULY 2010

Time to Grow; Introducing YE2011 Target Prices
Flavio Queiroz* Fabiola Gama* Gonzalo Fernández*
Brazil: Banco Santander S.A. Brazil: Banco Santander S.A. Mexico: Banco Santander S.A.
+5511 3012-7530 +5511 3012-7414 +5255 5269-1931
flavio.queiroz@santander.com.br fpgama@santander.com.br gofernandez@santander.com.mx
In this report, we are introducing our YE2011 target prices and updating our estimates for the Brazilian income property
companies we cover. In addition, we recently initiated coverage of BR Properties with a Buy rating, and we are upgrading our
rating for BR Malls to Buy from Hold. We present both companies as our top picks.
• Positive outlook for the Brazilian income property industry. We believe the attractiveness of this industry is due
to the combination of rising rental prices and the outlook for cap-rate compression. While the GLA scarcity effect,
together with the bright domestic economy growth prospects, should be the main reasons behind the expected
appreciation in rental prices, a medium-term reduction in the industry’s cost of capital should be the driver for a cap-
rate compression. Also, the industry is in the early stages of consolidation, which presents promising prospects for the
leading companies’ growth in the coming years.
• We prefer office buildings to shopping centers. Comparing both segments of the income properties industry, we
favor office buildings over shopping centers, as, in our view, office buildings are in an earlier stage of the up-cycle,
meaning that this segment should enjoy upside in rental prices for a longer period.
• Corporate expenses are also a key driver for companies’ profitability. Aside from the solid industry fundamentals
of the income property companies we cover, we highlight that the control of corporate expenses also plays a very
important role for equity investors, as the profitability of projects can be diminished by excessive corporate expenses.
In this parameter, BR Properties emerges as the most efficient, while Multiplan is the least efficient.
• Our top picks in the sector are BRMalls (upgrading our rating to Buy from Hold) and BR Properties (see our
initiation of coverage report published on July 13). This is based on our preference for growth stories, coupled
with efficient corporate structures. Moreover, we highlight that both stocks are currently trading at compelling
valuations and, therefore present good entry points, in our opinion.
• In our view, Iguatemi presents attractive earnings momentum ahead, as it is expected to deliver three of its five
greenfield projects as early as 2011. In the case of Cyrela Commercial Properties (CCP), its strong portfolio drives
its higher consolidated profitability, which somewhat offsets its weaker earnings momentum compared with its peers,
as the company is not expected to deliver GLA expansion before 2012.
• Multiplan’s currently high multiples leave us more cautious regarding its stock’s performance despite the company’s
premium shopping center portfolio, which drives stronger-than-average profitability. As for São Carlos, its lack of
earnings growth is the main reason for our Hold rating.
Universe of Coverage (Brazilian Reais in Millionsa)
Price Target Upside/ P/FFO (x) P/FFO G (x) P/BV ADTV Mkt.
Company Ticker Rec July 12 Price Down 2009A 2010E 2011E 2010E 2009A 2010E 2011E 52 Weeks Cap
b
BR Properties BRPR3 Buy 12.90 17.50 35.7% 23.2 16.1 10.7 12.1x 1.1 1.0 1.0 2,669 1,794
CCP CCPR3 Buy 10.00 14.00 40.0% 12.6 11.5 10.9 10.1x 2.2 1.9 1.7 580 864
São Carlos SCAR3 Hold 15.65 20.00 27.8% 10.6 10.5 8.9 9.4x 1.5 1.3 1.2 552 902
BRMalls BRML3 Buy 23.63 32.50 37.5% 17.0 17.7 16.0 15.3x 0.9 0.9 0.9 17,310 4,783
Iguatemi IGTA3 Buy 31.60 41.00 29.7% 18.3 15.9 13.1 13.4x 1.6 1.7 1.6 3,893 2,504
Multiplan MULT3 Hold 32.89 41.00 24.7% 25.4 19.5 17.1 16.5x 1.9 1.9 1.8 10,786 5,845
a
Except per share amounts. Sources: Company reports and Santander estimates. bThree-month average volume in R$000.
Important disclosures/certifications are in the “Important Disclosures” section of this report.

U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/ (212) 350-3918.
* Employed by a non-US affiliate of Santander Investment Securities Inc. and is not registered/qualified as a research analyst under FINRA rules.
Time to Grow; Introducing 2011 Target Prices
TABLE OF CONTENTS
Brazilian Income Properties.......................................................................................................1
Recommendations, Target Prices, and FFOPS Estimates..........................................................3
Catalysts and Drivers .................................................................................................................4
Four Reasons to Be Bullish on the Brazilian Income Properties Industry .............................4
Shopping Center Industry Fundamentals...................................................................................8
Office Industry Fundamentals..................................................................................................12
Occupancy Outlook ..........................................................................................................15
Equity Investors Should also Pay Close Attention to Corporate Expenses Efficiency ........16
Comparative Multiple Analysis ...............................................................................................17
BR Properties...........................................................................................................................19
CCP..........................................................................................................................................27
São Carlos ................................................................................................................................35
Valuation..................................................................................................................................39
BRMalls ...................................................................................................................................43
Iguatemi ...................................................................................................................................51
Multiplan..................................................................................................................................59
2 Important disclosures/certifications are in the “Important Disclosures” section of this report.

U.S. investors’ inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/ (212) 350-3918
RECOMMENDATIONS, TARGET PRICES, AND FFOPS
ESTIMATES
Inv Code Target Price 2010E 2011E 2012E
Company From To YE10 YE11 From To Ì% From To Ì% From To Ì%
BR Properties -- Buy -- 17.50 -- 0.80 - -- 1.21 -- -- 1.62 --
CCP Buy Buy 18.00 14.00 0.76 0.87 13.4% 0.81 0.92 13.7% 0.76 1.17 55.0%
São Carlos Hold Hold 20.00 20.00 1.44 1.50 3.9% 1.60 1.75 9.8% 1.76 2.06 17.2%
BRMalls Hold Buy 28.00 32.50 1.48 1.33 -10.3% 1.74 1.48 -14.7% 2.01 2.16 7.6%
Iguatemi Buy Buy 40.00 41.00 1.98 1.99 0.4% 2.33 2.41 3.5% 2.93 2.87 -1.9%
Multiplan Hold Hold 36.00 41.00 1.99 1.69 -15.1% 2.20 1.92 -12.8% 2.63 2.14 -18.6%
Sources: Company reports and Santander estimates.
Figure 1. Brazil—Select Economic Projections, 2008–2012E

2008 2009 2010E 2011E 2012E
Real GDP (%) 5.1% -0.2% 7.8% 4.5% 4.5%
Inflation (IPCA) 5.9% 4.3% 5.5% 5.0% 4.5%
Inflation (IGPM) 9.8% -1.7% 7.5% 4.5% 4.5%
US$ FX Rate (Year-End) 2.34 1.74 1.95 2.10 2.13
US$ FX Rate (Average) 1.83 2.00 1.83 2.03 2.12
Interest Rate (Year-End) 12.4% 9.9% 10.5% 13.4% 11.4%
Sources: Santander historical and forecasts.
Figure 2. Investment Thesis Summary

Company Investment Opinion/Basis for Recommendation
BR Properties • As a fast-growing company, which bases its strategy on acquisitions, we believe that BR Properties is leading the
Buy consolidation process in the commercial properties segment. Thus, it should enjoy the benefits of a first mover and
R$17.50 accumulate GLA at attractive transaction prices. Therefore, the company is one of our top picks in the sector.
CCP • We view CCP as a value play because its high-quality portfolio (concentrated in the triple-A segment in premium
Buy locations, where land availability is virtually nonexistent) is well positioned to capture appreciation in rental prices and at
R$14.00 the same time endure a market downturn (though we believe this is unlikely). Furthermore, the company is not expected
to start delivering an expansion in GLA until after 2012.
São Carlos • Although there are some acquisitions in the company’s pipeline, we view these as replacement for the recently sold
Hold GLA. Therefore, they are not expected to lead to an expansion in the company’s earnings. Hence, we have a Hold rating
R$20.00 for the stock.
BRMalls • Considering the company’s acquisitions and greenfield projects combined, we expect BR Malls to present a three-year
Buy top-line CAGR of 32% following an expansion in GLA of 18% per year during the same period. Furthermore, the
R$32.50 company’s excellent track record in delivering operating turnarounds in acquired units play an important role in improving
its consolidated profitability.
Iguatemi • Following the delivery of the upcoming organic growth expected for 2011, Iguatemi should post a significant
Buy improvement in its consolidated profitability as the new shopping centers should drive higher company’s average
R$41.00 revenue per square meter.
Multiplan • One of Multiplan’s biggest differentials compared with its peers is its higher-than-average revenue per square meter,
Hold which in our opinion, shows the higher quality of its portfolio. On the other hand, the company’s lower efficiency in terms
R$41.00 of corporate expenses dissipate part of this higher than average profitability. Furthermore, its currently high multiples
leave us more cautious regarding its stock’s performance, therefore justifying our Hold rating.
Important disclosures/certifications are in the “Important Disclosures” section of this report. 3

CATALYSTS AND DRIVERS

FOUR REASONS TO BE BULLISH ON THE BRAZILIAN INCOME
PROPERTIES INDUSTRY
We believe that the Brazilian income properties segment is an attractive investment alternative in
our real estate universe overall, as in our opinion it: (1) should benefit from rental price
appreciation; (2) currently combines high yields with low operating volatility; (3) is still in the
early stages of consolidation; and (4) should go through a significant cap-rate compression in the
medium term.
In our view, the growing companies benefit first from the aforementioned factors, as they are
currently able to accumulate properties at compelling prices. Moreover, these companies should
be able to capture significant scale synergies, not to mention the fact that they should enjoy
industry upsides on bigger portfolios.
(1) OUTLOOK FOR RENTAL PRICE APPRECIATION

According to our estimates, rental prices in Brazil should soar as a result of GDP growth and,
consequently, domestic income expansion because, considering the industry’s currently low
vacancy rate, there is little room to accommodate the upcoming demand for new GLA. This
scenario is helped by the supply constraints resulting from the relatively long lead time required
for construction of new GLA, combined with land scarcity in preferred locations.
As shown in the charts below, economic growth periods drive GLA absorption in the office
market, while it boosts the retail sales that contribute to the shopping centers segment. According
to our economic team, Brazilian GDP should grow by 7.8% in 2010 and 4.5% in 2011.
Figure 3. Retail Sales vs. GDP Growth, 2004-2011E Figure 4. Office Net Absorption (in ’000 M2) in São Paulo
(YoY Change, %) (SP)+Rio de Janeiro (RJ) vs. GDP Growth, 2004-2011E
14%
8%
12% 7%
10% 6%
8% 5%
6% 4%
4% 3%
2% 2%
1%
0%
0%
-2%
2004 2005 2006 2007 2008 2009 2010E -1%
2004 2005 2006 2007 2008 2009 2010E
Retail Sales GDP
% Absorption SP % Absorption RJ GDP Growth
Source: Santander estimates.
Another key driver for growth in nominal rental prices is its link to the inflation set by the leasing
contracts practiced by the industry today which establishes annual readjustments generally based
on IGPM (see Figure 5). We estimate this to be an important driver for sector revenue in

2010/2011, as, according to our macroeconomic team’s forecasts, IGPM should pick up and reach
7.5% and 4.5% in 2010 and 2011, respectively. Furthermore, we highlight that the investment
property assets are themselves a natural hedge against inflation.
Figure 5. IGPM Inflation vs. SSR! Growth – YoY Comparison (SSR Is 12-Month Delayed)
14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10
IGPM (% Chg YoY) SSR (% Chg YoY)
Sources: Santander. 1SSR stands for same-store rent.
(2) HIGH YIELDS WITH LOW OPERATING VOLATILITY

The income property segment in Brazil currently offers higher yields than in developed countries
despite presenting the same low operating volatility shown in those locations.
The higher yields are explained by the currently higher cost of capital, while the low operating
volatility is attributable to the long-term leasing contracts that provide the industry with a cushion
from abrupt economic slowdowns. The low operating volatility is, in our opinion, one of the main
reasons behind the defensive nature of the industry, and that could be confirmed by the income
property segment’s outperformance of the other segments of the Brazilian economy (in operating
terms) during the recent economic downturn.
Figure 6. YoY Top-Line Growth – Selected Sectors Figure 7. Net Margin Evolution – Selected Sectors
100%
50%
80%
40%
60%
30%
40%
20%
20%
10%
0%
0%
-20%
-10%
-40%
4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 -20%
Aerospace Malls+Properties 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10

Retail Mining & Steel Aerospace Malls+Properties
Retail Mining & Steel
Sources: Santander company releases. Retail: B2W, Lojas Americanas and Lojas Renner; Mining: Vale do Rio Doce, Companhia Siderúrgica Nacional and
Usiminas; Aerospace: Embraer, Gol and Tam; Malls+Properties: BRMalls, Iguatemi, Multiplan, CCP, São Carlos and BR Properties.

(3) EARLY STAGES OF INDUSTRY CONSOLIDATION

The industry’s current fragmented nature puts the leading companies in an advantageous position
to promote the sector’s consolidation as they would be able to benefit from their stronger (and
cheaper) capital structures. We see this consolidation process as an important driver for the
expansion in companies’ top line, and it should take place organically and through acquisitions, in
our opinion.
Figure 8. GLA Breakdown – Shopping Center Industry Figure 9. GLA Breakdown – Companies in the Office Market
General
Shopping Iguatemi São
4% Aliansce CCP
2% 1% Carlos BR
5% 3% Properties
Multiplan 6%
6%
Others
72%
BRMalls
11%
Others
90%
Sources: Santander and company releases.
(4) EXPECTED CAP-RATE COMPRESSION

In our opinion, a medium term reduction in the industry’s cost of capital should promote an
important cap rate compression (net operating income/EV), which should take place through the
appreciation of the properties rather than through a reduction in rental prices as the industry’s
limited supply in preferred locations should create a floor in rental prices. Such a reduction in the
cost of capital is expected to take place in the medium term, after the current cycle of monetary
policy tightening is complete, which we believe will be short lived. We highlight that Brazil
currently has one of the highest costs of capital in the world at the same time that it has a stable
macro environment, and it is currently rated as an investment-grade country.
Some could compare this effect to that of a bond appreciation as a result of lower interest rates.
However, we believe that there is one important difference that makes income properties more
attractive–the outlook for rental price appreciation, which contrasts with bonds’ fixed coupons.
Nevertheless, monetary tightening cycles used to be a headwind for stock performance, and our
economic team estimates interest rates should peak at 13.4% in 2011. As we have mentioned, we
believe that this cycle should be short-lived, and we envisage the cost of capital in Brazil falling
back in the medium term.
Of note, the historical inverse correlation between interest rates and the sector’s stock
performance has not been verified since 1H09 (see Figure 10), which in our opinion, reflects the
Brazilian income property industry’s strong fundamentals.

Figure 10. Correlation between Properties Index* and the One-Year Swap Rate
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
-10% -10%
-20% -20%
-30% -30%
-40% -40%
-50% -50%
Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10
Sources: Santander and Economática. *Index used the market cap weighted normalized closing price series of the following stocks:
BRML3, CCPR3, IGTA3, MULT3, and SCAR3. The shaded areas represent the periods in which the correlation is relevant.
WE PREFER OFFICE BUILDINGS OVER SHOPPING CENTERS

The income properties universe comprises different segments such as Shopping Centers, Offices,
Warehouses and Hotels, with Shopping Centers and Offices being the most important segments in
Brazil at present. Despite the several similarities among these segments (as highlighted in the
previous section), there are also some important differences that we believe are worth
highlighting.
The main difference between shopping centers and office buildings is the fact that each
segment is in a different stage of the industry’s cycle. While the office market is undersupplied
with very low vacancy rates and new GLA is still taking some time to be delivered, the shopping
center industry is about to deliver a sizable expansion, which should leave the industry better
supplied. As a result, prices in each segment should react accordingly and present stronger
appreciation in the office market than in the shopping centers.
Another important difference between the two segments is the better efficiency of the office
market in terms of the ratio GLA/total area, as shopping centers require larger common areas to
operate. The implication of this effect is the higher capex per leasable area required in shopping
centers, which increases the industry’s invested capital. This, however, is offset by the higher
rental prices enjoyed by shopping centers compared with the office market.
That said, our analysis suggests that, despite the structural differences in capex, rental prices, and
costs, both segments provide similar levels of profitability when measured by ROIC (see the
following chart).

Figure 11. ROIC Tree – Profitability Levels Are the Same for Both Segments
Both segments
present the same COGS/Revenue
level of
13%
profitability. 3%
EBITA Margin
61% 67% 1-
SG&A/Revenues
16% 18%
Pre Tax ROIC
12% 12% X
Depreciation and
Amortization/Revenue
10% 11%
Shopping Center PPE/Revenue

703%
Commercial 464%
+
Capital turnover (x)
Working Capital/Revenue
0.2x 0.17x 1/ 13% 10%
+
Other Net Assets/Revenue
20%
11%
Sources: Santander.
Another difference is the consolidation format that should take place in each segment. In our
view, while the office market should consolidate through acquisitions, the shopping centers
should face a more organic process, with the leading players growing more than the smaller ones,
therefore, promoting market-share concentration.
SHOPPING CENTER INDUSTRY FUNDAMENTALS

Contrary to market consensus, we believe that the Brazilian shopping center industry is
currently operating close to its full potential in terms of penetration, meaning that there is
little pent up demand to be captured in the market at present. This out-of-consensus view is
supported by an analysis showing that the Brazilian GLA is well aligned with international trends
when adjusted for domestic income (see following chart).
However, we believe that, as domestic income grows, the retail market should follow a similar
path and, consequently, drive nominal GLA expansion in the shopping center industry in order to
maintain flat the current market share of shopping centers in the Brazilian retail market.
Currently, the Brazilian shopping center industry has 9.1 million m2 of GLA and a market share
of 19% of total Brazilian retail sales.

Figure 12. Brazilian Shopping Center Penetration across the Globe
350
Sweden
Penetration in Netherland
Brazil is aligned 300
with international
trend. GLA (m²) per 1,000 inhabitants
250
Spain UK
200 Porto Alegre
Portugal
Switzerland
Rio de Janeiro São Paulo
150 Chile
Italy
100 Poland Czech Republic
Mexico
Brazil
50
Argentina
Turkey
-
5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000
PPP adjusted GDP per Capita - USD

Sources: International Council of Shopping Centers (ICSC, Abrasce) and Santander.
SUPPLY
The supply of new GLA in the shopping center industry has a very high visibility, as it takes a
long time to be delivered (on average, it takes three years of construction), and most of the new
projects are reported to the Brazilian Shopping Center Association (ABRASCE). That said,
according to ABRASCE, the new shopping center projects that have already been announced
should add as much as 1,294,000 m2 until the end of 2011, which is equivalent to a CAGR of
6.8% in the 2009-2011 period. Over the last five years, the annual supply addition has averaged
650,000 m² as shown in Figure 13, or the equivalent to a CAGR of 9%.
Figure 13. Shopping Center Industry – GLA Expansion (‘000 M2), 2005-2011E
14,000
12,000
794 10,394
500
10,000 9,100
500
300
800
8,000 1,000
6,500
6,000
4,000
2,000
0
2005 2006 2007 2008 2009 2010E 2011E
Source: Abrasce estimates.

We believe that most of the growth in the sector will remain in the hands of the leading players, as
we expect to see them benefitting from a more efficient capital structure and putting in place
projects that are below the profitability hurdle of the less efficient companies. With this in mind,
to assess the shopping center industry’s profitability, we combined its required capex and the
average rental prices per square meter. The table below highlights the tight excess return of the
industry at present.
Figure 14. IRR Sensitivity Analysis for Greenfield Projects

2
Capex per M (R$)
7,000 6,500 6,000 5,500 5,000 4,500 4,000
40 9.2% 10.8% 12.6% 14.6% 16.9% 19.5% 22.6%
Avg. Rent per m2
50 9.2% 10.9% 12.7% 14.7% 17.0% 19.6% 22.6%

60 9.3% 10.9% 12.7% 14.7% 17.0% 19.7% 22.7%
70 9.3% 10.9% 12.7% 14.8% 17.1% 19.7% 22.8%
80 9.3% 11.0% 12.8% 14.8% 17.1% 19.8% 22.8%
90 9.4% 11.0% 12.8% 14.9% 17.2% 19.8% 22.9%
100 9.4% 11.0% 12.9% 14.9% 17.2% 19.9% 23.0%
Sources: Santander
Considering the average capex per square meter of R$5,500, the shopping center industry
will require around R$7.1 billion just to deliver the already planned expansion. This is a very
large amount, as it represents more than the sum of the book value of our coverage universe
excluding goodwill (BRMalls, Multiplan, and Iguatemi). We believe, however, that a good
portion of this money should come through debt, as Brazilian companies are under-leveraged
compared with companies in the same segment in more developed markets.
Figure 15. Leverage of Mall Operators
Shopping Center Companies Country Segment Net Debt/Equity(x) Net Debt/EBITDA (x)
Developed Countries 1.5 7.6
Simon Property Group US Regional Malls 2.6 5.6
Taubman Centers US Regional Malls -5.6 7.1
Macerich Co/The US Regional Malls 2.1 10.0
Kimco Realty US Strip Malls 0.8 8.1
Federal Realty Investment Trust US Strip Malls 1.4 4.8
Developers Diversified Realty US Strip Malls 1.7 11.0
Weingarten Realty Investors US Strip Malls 1.1 6.4
Westfield Group AU Regional Malls 0.7 6.5
Unibail-Rodamco SE FR Mixed 0.6 8.0
LatAm 0.1 1.7
BRMalls BR Regional Malls -0.1 -1.0
Iguatemi BR Regional Malls 0.3 3.5
Multiplan BR Regional Malls 0.0 -0.1
Parque Arauco SA CL Regional Malls 1.0 5.7
Premium/(Discount) LatAm -91% -78%
Sources: Santander and Bloomberg.
In addition, we point out that in a sector with such low excess returns, leverage is very important
to improve companies’ ROE. Also, the industry’s low volatility favors its leverage potential.
One point of concern regarding the shopping center industry expansion is its geographical
distribution because, if growth remains limited to the larger centers, as has been the case so far, it
could start to reduce the industry’s profitability. This is because large centers are already well
supplied, and new projects would capture part of the client flow from existing malls. On the other
hand, there are some regions that are still undersupplied, which could present good opportunities
for further expansion. However, we think it would take some time to develop the culture of
shopping centers in these regions.

Figure 16. Shopping Center Industry – Expected GLA Addition in 2009 and 2010
+28%
378
296
2009 2011 2
1 +10%
1,418
1,287
3
2009 2011
+5%
811
771
Regions
4
1 North 2009 2011
+14%
2 Northeast 6,131
5,385
3 Middle-West
2009 2011
4 Southeast 5
5 South +17% Consolidated Brazil

1,650
1,411 +14%
10,338
9,151
2009 2011
2009 2011
Sources: Abrasce and Santander.
DEMAND
We expect the demand for new GLA in the shopping center industry to follow the growth of the
retail sector, which according to our estimates, should present a CAGR of 14% over the next three
years. This is based on our premise that the market share of sales in shopping centers should stay
flat in Brazilian retail sales. Since 2001, the sector has presented excess growth compared with
retail sales, which led to an increase in its market share from 13% to almost 19% in 2009. Such
market share growth, however, came at the cost of a reduction in the average revenue per square
meter experienced by retailers in shopping centers (in real terms). As we estimate that the sector is
currently in balance, a further deterioration in the retailers’ results could have a negative impact
on their ability to afford rental price increases.

Figure 17. GLA Growth vs. Revenue per M2, 2000-2009 Figure 18. SC Share in Retail Sales vs. Revenue per M2 , 2001-
2009
10,000 12,000
9,000 10,500 20%
8,000 18%
10,000
7,000 16%
10,000
6,000 14%
9,500
12%
5,000
9,000 10%
4,000
8,000 8%
3,000 8,500
6%
2,000
4%
8,000
1,000 2%
- 6,000 7,500 0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2001 2002 2003 2004 2005 2006 2007 2008 2009
GLA in 000 m2 (LHS) Deflated revenue per m2 (RHS) SC share in retail sales (RHS) Revenues per m2 (LHS)
Sources: Santander.
OFFICE INDUSTRY FUNDAMENTALS

In contrast to the shopping center industry, we believe that the office market in Brazil is still
underpenetrated, even if adjusted for income and population. The office markets of São Paulo and
Rio de Janeiro combined amount to 9.5 million m² of high quality office space (A-Class or better),
which compared with other major business metropolitan areas around the globe, is still below
their potential (see charts blow).
Figure 19. Office Inventory vs. GDP – Selected Cities Figure 20. Office Inventory vs. Population – Selected Cities
40 40
35 35
Office Inventory (m2 million)
Office Inventory (m2 million)
30 30
25 25
20 20
15 15
10 10
5 São Paulo 5
São Paulo
Rio de Janeiro Rio de Janeiro
0 0
0 200 400 600 800 1,000 0 5 10 15 20
Population (million)
Metropolitan Region GDP (US$ billion)
Sources: Colliers Global Office Review 2009, PricewaterhouseCoopers, World Bank, and Santander.
SUPPLY
As shown in the charts above, there is still some pent up demand to be captured in the Brazilian
office market, which combined with the positive growth outlook for the Brazilian economy,
should drive the expected expansion in the segment. However, it is important to note that the
profitability resulting from the expected growth is highly dependent on capex discipline because,
similar to shopping centers, the office building industry presents low excess returns relative to its
current cost of capital. Below, we present different combinations of capex per square meter and
rental prices in order to assess the implied profitability in each case.
Figure 21. IRR Sensitivity Analysis
2
Capex per M (R$)
6,000 5,500 5,000 4,500 4,000 3,500 3,000
5 8.7% 10.6% 12.7% 15.1% 17.9% 21.2% 25.2%
Avg. Rent per m2 25 8.6% 10.4% 12.5% 14.9% 17.7% 21.0% 24.9%
45 8.6% 10.5% 12.6% 15.0% 17.8% 21.1% 25.0%
55 8.6% 10.5% 12.6% 15.1% 17.9% 21.2% 25.1%
75 8.7% 10.6% 12.8% 15.2% 18.0% 21.3% 25.3%
95 8.9% 10.8% 12.9% 15.4% 18.2% 21.5% 25.6%
115 9.0% 10.9% 13.0% 15.5% 18.4% 21.8% 25.8%
Sources: Santander.
In our view, aside from domestic economic performance, land availability in preferred locations
and the industry’s level of profitability are also drivers for industry expansion.
At present, São Paulo (SP) and Rio de Janeiro (RJ) are Brazil’s two main office markets by a
large margin as, according to the real estate consultancy firm, CB Richard Ellis (CBRE), the São
Paulo metropolitan region has a total GLA of approximately 11 million m2, out of which 5.6
million m2 corresponds to properties with central air conditioning (Class-A). Rio de Janeiro
follows, with a total inventory of 5.8 million m2, as construction there has been traditionally very
restrained by the lack of land availability.
As shown in the chart below, the annual supply addition over the last five years has averaged
some 180,000 m² in São Paulo and 60,000 m² in Rio de Janeiro, and according to CBRE, building
activity should continue in line with the trend in São Paulo (around 100,000 m²), and accelerate
slightly in Rio de Janeiro (to some 100,000 m²).
Figure 22. Office Space Supply Addition (New Inventory, in ’000 M2) in SP+RJ, 2004-2011E
300
250 240
220
211
200
174
159
150 134 130
125
110
95
100 90
68
50 55
55
50 28
-
2004 2005 2006 2007 2008 2009 2010E 2011E
New Inventory SP New Inventory RJ

Sources: CBRE and Santander estimates.

DEMAND
In periods of GDP growth and increased confidence in the economy, both gross and net area
absorption usually increase, as not only does more office space become occupied, but companies
also tend to move to larger and more expensive offices. During economic downturns, net
absorption usually shrinks, but it is still possible to have some gross absorption with companies
inter-changing offices.
Figure 23. Office Space Supply Demand (Net Absorption, in ’000m2) in SP+RJ, 2004-2011E
400 381
350
325
300 288 288
300
250
200
150 138
115 115 120
110 98 101
90 90
100
60 55
50
-
2004 2005 2006 2007 2008 2009 2010E 2011E
Net Absorption SP Net Absorption RJ

Since 2004, annual net absorption (office space occupied in the period) in these markets has
averaged some 200,000 m2 in SP and 60,000 m2 in RJ, as shown in Figure 23. Office space
absorption has a strong correlation with GDP growth (r=59%), as shown in Figure 24. Bearing
that in mind and considering our macro team’s GDP forecast, we estimate that annual net
absorption will be around 3%-5% of inventory in 2010-2011E, or an average of 210,000 m2 in SP
and 100,000 m2 in RJ.
Figure 24. Office Net Absorption (in ’000m2) in SP+RJ vs. GDP Growth, 2004-2011E
8%
7.2%
7% 6.3% 6.3%
6.0% 6.1%
6% 5.7%
5.1% 5.1% 5.1% 5.0%
5% 4.8% 4.6% 4.5%
4.0%
4% 3.5% 3.4% 3.6%
3.2%
3% 2.4% 2.4%
2.2% 2.2%
1.8%
2%
1%
0%
-0.2%
-1%
2004 2005 2006 2007 2008 2009 2010E 2011E
% Absorption SP % Absorption RJ GDP Growth


Figure 25. Brazil Formal Job Creation, 2004-2009 (’000 Job Posts)
400
300
200
100
(100)
(200)
(300)
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
May-04
May-05
May-06
May-07
May-08
May-09
Sources: CAGED and Santander.
OCCUPANCY OUTLOOK
We expect the occupancy rate to pick up further in 2010 as a result of strong demand coupled
with limited new GLA supply. At the end of 2008, office vacancy rates reached all-time lows,
bottoming in the beginning of 1H09 in SP and at the end in RJ, followed by a brief upturn in SP
due to negative net absorption as a result of the fallout of the international financial crisis.
Figure 26. SP+RJ Office Market Dynamics – Supply/Demand (’000 M2) vs. Vacancy, 2004-2011E
300 6%
New Supply - Net Absorption ('000m2)
200 4%
Change in Vacancy Rate (%)

100 54 2%
45
0%
- 0%
0% (19) -0.2%
(30) -1%
(100) -2%
-2% -2.6%
-3% -3% (156)
(200) -4%
(202) (202)
(221)
(300) -6%
2004 2005 2006 2007 2008 2009 2010E 2011E
Supply Addition - Net Absorption Change in Vacancy (RHS)
In SP, we expect vacancy rates to drop further until the end of 2011E (from 6.5% in 4Q09)
converging to the rate in RJ (which we expect to remain stable at some 3% (vs. 3.1% in 4Q09).

Figure 27. Office Vacancy Rate (%) in SP and RJ, 2004-2011E
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2004 2005 2006 2007 2008 2009 2010E 2011E
Vacancy Rate SP Vacancy Rate RJ
This picture is very different than it was five years ago, when a combination of strong investments
in new office buildings at the beginning of the decade (particularly in SP) with a sluggish demand
for office space (particularly in RJ), had taken vacancy rates to around 17% in SP.
EQUITY INVESTORS SHOULD ALSO PAY CLOSE ATTENTION TO

CORPORATE EXPENSES EFFICIENCY
We believe that the cap rate is a very efficient metric to analyze standalone projects; however,
from an equity investors’ perspective, lower efficiency in corporate expenses can offset an
important portion of the profitability offered by a high-quality portfolio. That said, in our opinion,
the difference in corporate expense efficiency levels explains part of the implied discrepancies in
cap rates among the Brazilian players we cover. In order to determine the most efficient players in
terms of corporate expenses, we plotted the following chart that shows the ratio of SG&A as
percentage of the companies’ revenue.
Figure 28. SG&A as % of Revenue, 2011E

20% 18.7%
BR Malls and BR 16.7%

Properties present
the most efficient 15% 14.3%
corporate 13.1%
structures.
10.7%
10.1%
10%
5%
0%
BR Properties BRMalls Iguatemi CCP São Carlos Multiplan

According to this analysis, the most efficient company is BR Properties, followed by BRMalls,
Iguatemi, CCP, São Carlos, and Multiplan. This reinforces our preference for BR Properties and
BRMalls.
COMPARATIVE MULTIPLE ANALYSIS

Our preferred valuation metric for income properties is P/FFO (funds from operations), as it is a
good proxy for cash flow generation and already reflects all the corporate expenses. However, as
the sector presents a long construction cycle, looking only at P/FFO could be misleading at times,
as it is important to factor in the companies’ expected growth. Based on this, we plotted the chart
in Figure 29, which crosses the P/FFO with the companies’ three-year GLA CAGR.
BR Properties emerges as one of the cheapest at the same time that it presents the strongest
growth prospects among its peers, which corroborates with our positive view on the company’s
stock. We also have a positive view on BRMalls, as we believe it presents a good combination of
growth and valuation. Our Hold rating for both Multiplan and São Carlos is based on different
factors. While Multiplan is currently trading at an excessive premium to its peers (even
considering its higher profitability), we believe the lack of growth we expect for São Carlos
weighs on the stock’s performance.
Figure 29. Selected Brazilian Income Property Comps – 2011E P/FFO vs. 3-Yr GLA CAGR
BR Properties is 20x
the cheapest
company and 18x
Multiplan
presents the
16x BRMalls
strongest growth.
2011E P/FFO
14x Iguatemi
12x
CCP BR Properties
10x
São Carlos
8x
6x
5% 10% 15% 20% 25% 30%
09-12E GLA CAGR (%)
We point out the premium at which the shopping center segment is currently trading over the
commercial property companies. In our opinion, there is little rationale to justify such a premium,
as both segments present similar levels of profitability. We believe the only reason that could be
behind this discrepancy would be a liquidity discount.

Figure 30. Selected Brazilian Income Property Comps, 2009-2011E

Capitalization Properties Malls BRML3 IGTA3 MULT3 Office/Ind. BRPR3 CCPR3 SCAR3
Price R$ 23.63 R$ 31.60 R$ 32.89 R$ 12.90 R$ 10.00 R$ 15.65
Market Cap 16,691 13,131 4,783 2,504 5,845 3,560 1,794 864 902
Valuation Ratios
P/BV 2009 1.5x 1.3x 0.9x 1.6x 1.9x 1.5x 1.1x 2.2x 1.5x
P/BV 2010E 1.3x 1.4x 0.9x 1.7x 1.9x 1.2x 1.0x 1.9x 1.3x
P/BV 2011E 1.3x 1.3x 0.9x 1.6x 1.8x 1.2x 1.0x 1.7x 1.2x
EV/EBITDA 2009 14.3x 15.4x 16.3x 12.3x 16.0x 11.5x 17.9x 9.7x 8.5x
EV/EBITDA 2010E 14.1x 14.6x 15.2x 14.3x 14.1x 12.9x 17.4x 8.9x 10.4x
EV/EBITDA 2011E 11.6x 13.1x 13.1x 11.2x 14.1x 8.9x 9.1x 7.8x 9.2x
P/FFO 2009 20.9x 20.2x 17.0x 18.3x 25.4x 14.1x 23.2x 12.6x 10.6x
P/FFO 2010E 16.7x 18.0x 17.7x 15.9x 19.5x 13.1x 16.1x 11.5x 10.5x
P/FFO 2011E 14.1x 15.8x 16.0x 13.1x 17.1x 10.2x 10.7x 10.9x 8.9x
Source: Santander. Note: Prices as of July 12, 2010; all data in Brazilian reais.
Moreover, while in Brazil the shopping center industry trades at a premium to the office business
segment, in developed countries both segments trade at similar multiples as shown in Figure 31.
Figure 31. Selected Income Property Stocks – LatAm vs. Developed Markets, 2010E-2012E
EV/EBITDA P/FFO
Shopping Centers Country Segment 2010E 2011E 2012E 2010E 2011E 2012E
Developed Countries 16.4 15.9 14.5 14.9 14.2 13.3
Simon Property Group US Regional Malls 14.4 13.5 12.7 15.8 13.5 12.8
Taubman Centers US Regional Malls 14.3 14.0 12.8 14.9 14.3 13.3
Macerich Co/The US Regional Malls 22.3 20.7 18.7 14.9 14.3 13.6
Kimco Realty US Strip Malls 16.8 16.7 14.5 12.6 12.3 11.6
Federal Realty Investment Trust US Strip Malls 17.9 17.3 16.9 19.3 18.3 17.3
Developers Diversified Realty US Strip Malls 16.0 15.7 14.6 12.1 10.5 10.4
Weingarten Realty Investors US Strip Malls 16.3 15.9 14.1 12.3 11.8 11.6
Westfield Group AU Regional Malls 16.4 14.8 13.4 8.8 14.4 13.9
Unibail-Rodamco SE FR Mixed 17.4 16.4 15.7 14.9 14.2 13.8
LatAm 14.2 12.5 10.9 17.7 16.0 11.0
BRMalls BR Regional Malls 15.2 13.1 10.9 17.7 16.0 10.9
Iguatemi BR Regional Malls 14.3 11.2 10.1 15.9 13.1 11.0
Multiplan BR Regional Malls 14.1 14.1 11.0 19.5 17.1 15.4
Parque Arauco SA CL Regional Malls 14.2 12.0 11.7 NA NA NA
Premium/(Discount) Latam -13% -21% -25% 19% 12% -17%
Offices/Industrial
Developed Countries 18.1 16.8 15.9 14.5 13.5 12.4
Boston Properties US Office 17.4 16.2 15.7 18.7 17.6 16.6
SL Green Realty US Office 18.8 18.8 18.8 14.1 14.1 14.0
Alexandria Real Estate Equities US Office 19.2 17.3 16.2 16.6 14.1 13.6
Mack-Cali Realty US Office 11.6 11.7 11.5 10.8 10.9 10.5
Brookfield Properties CA Office 13.1 12.5 11.9 12.1 11.7 11.1
Duke Realty US Mixed 14.0 13.8 14.2 10.1 10.1 9.6
Liberty Property Trust US Mixed 12.8 12.6 12.6 11.1 10.9 10.5
AMB Property US Industrial 22.9 20.7 20.2 19.7 17.5 15.4
ProLogis US Industrial 20.2 18.6 19.1 17.4 13.0 11.3
Gecina SA FR Mixed 19.8 19.4 18.6 14.9 14.4 13.9
Latam 12.2 8.7 7.7 12.7 10.2 8.0
BR Properties BR Mixed 17.4 9.1 7.6 16.1 10.7 8.0
CCP BR Mixed 8.9 7.8 8.0 11.5 10.9 8.5
São Carlos BR Mixed 10.4 9.2 7.7 10.5 8.9 7.6
Premium/(Discount) Latam -33% -48% -52% -13% -25% -36%
Sources: Bloomberg and Santander estimates. NA not available. Note: Prices as of July 12, 2010. NA not available.

BR PROPERTIES BUY
Super Size Me
(5511) 3012-7530 (5511) 3012-7414 (5255) 5269-1931
(7/12/10) Investment Thesis: We recently initiated coverage of BR Properties

CURRENT PRICE: R$12.96/US$7.29 with a Buy rating and a YE2011 target price of R$17.50 per share
TARGET PRICE: R$17.50/US$8.30 (US$8.30), implying 36% upside potential. Also, we point out that BR
Properties is one of our top picks in our Brazilian income properties
What’s Changed
universe of coverage based on the following criteria:
Rating Maintaining Buy
Price Target (R$) YE11: 17.50
• Leading the industry’s consolidation process. In our opinion, BR
EBITDA Estimates (US$ Mn) ’10 to 95.4
’11 to 168.8
Properties will continue to benefit from its position as a first mover
’12 to 192.8
in the industry and should be able to grow its portfolio at
compelling transaction prices.
Company Statistics
• Margin expansion ahead. Due to its strong operating leverage, as
Bloomberg BRPR3.BZ
52-Week Range (US$) 5.59-7.45
the company delivers top-line growth we expect to see significant
2011E P/E Rel to the Ibovespa (x) 1.59 operating margin expansion stemming from a dilution of current
2011E P/FFO Rel to Real Estate (x) 0.76 SG&A expenses.
Ibovespa (US$) 35,671
3-Yr EBITDA CAGR (09-12E) 62% • Strong execution track record. BR Properties had a proven track
Market Capitalization (US$ Mn) 1,015 record in execution even before its listing in the Bovespa. Also, the
Float (%) 76.8 company is ahead of its guidance in terms of GLA addition to its
3-Month Avg Daily Vol (US$000) 1,512 portfolio, which partially mitigates many of the execution concerns
Shares Outst - Mn 139.11 raised by investors given the aggressive targets presented after its
Net Debt/Equity (x) 0.1 IPO. Therefore, we forecast a three-year top-line CAGR of 57%.
Book Value per Share (US$) 6.72
• The stock is currently trading at 9.1 times 2011E EV/EBITDA
Estimates and Valuation Ratios and 10.7 times 2011E P/FFO, which is in line with the Brazilian
2009 2010E 2011E 2012E commercial property companies’ average.
Net Earn (R$ Mn) 29.0 84.9 117.7 166.1
Current EPS 0.36 0.61 0.85 1.19 Valuation and Risks: Our YE2011 target price was derived from a free
Net Earn (US$ Mn) 14.5 46.4 58.1 78.5 cash flow to firm analysis, using a WACC of 12.0 % in reais and a
Current EPS 0.18 0.33 0.42 0.56
nominal terminal growth of 4.5%. We also ran a free cash flow to equity
P/E (x) 36.3 21.1 15.2 10.8
and an economic profit analysis, and we arrived at the same result using
P/Sales (x) 17.3 8.9 5.3 4.7
P/FFO (x) 23.2 16.1 10.7 8.0
all three methodologies. Risks include: (1) overpayment for the
EV/EBITDA (x) 17.9 17.4 9.1 7.6 company’s acquisitions; (2) an unexpected increase in vacancy rates,
EV/Sales (x) 13.9 14.5 8.0 6.8 which could reduce rent collection and decrease margins; (3) potential
FCF Yield (%) -17.2% -44.6% 2.0% 4.6% increases in competition for real estate assets in the Brazilian market,
Div per Share (US$) NM 0.13 0.21 0.30 particularly from foreign players; (4) lack of financing for real estate
Div Yield (%) NM 1.0% 1.6% 2.3% acquisitions; and (5) unexpected setbacks in the implementation of its
NM not meaningful. Sources: Bloomberg, Company Reports, and
Santander estimates.
development pipeline.

Time to Grow;Introducing 2011 Target Prices
BR Properties is a leading company in Brazil’s income property industry that is focused on the corporate real estate
markets. Currently, the company acquires, manages, leases and sells income-generating commercial properties across
Brazil, with a primary focus on office buildings and warehouses. As of 1Q10, the company had a total gross leasable
area of 968,700 m2, with 231,500 m2 being in offices, 7,100 m2 in retail, and 730,100 m2 of warehouses.
INVESTMENT THESIS
A GROWTH STORY MAINLY BASED ON ACQUISITIONS
As a fast-growing company whose strategy is based on acquisitions, we believe that BR
Properties is leading the consolidation process of the commercial properties segment. Thus, it
should benefit from being a first mover, and we expect it to accumulate GLA at attractive
transaction prices.
Despite its having been a listed company for a short period, BR Properties has already
established a proven track record in acquisitions, as it was able to add 646,000 m2 in GLA while
it was still a private company (the funding for these acquisitions were a combination of debt and
private equity placements made by the controllers), and it has already added 323,000 m2 since its
IPO. We also point out that the company is ahead of its guidance in terms of acquisitions for
1H10.
Figure 32. BR Properties – GLA Evolution (‘000 M2)

1600 1,466
47
150
1400
300
1200
238 969
1000
127
800 207
600
93 16 15
400 195
55
200
22
0
Current
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
2H10E
2011E
2012E
Sources: BR Properties and Santander estimates.
As its growth strategy unfolds BR Properties we expect it to continue to benefit from the
industry’s operating leverage and post significant margin expansions, which will help its
consolidated profitability to improve. According to our estimates, if BR Properties is able to
deliver all the expected additional GLA without growing its G&A at the same pace, it should
reach one of the lowest G&A ratios in the industry, i.e., it will have one of the most efficient
corporate structures among the players in the sector.
IMPLIED GROWTH ANALYSIS REINFORCES OUR VIEW THAT

THE COMPANY IS TRADING BELOW ITS FAIR VALUE
The curve of the implied market valuation for BR Properties is below our base-case scenario,
which supports the outlook for the stock’s upside potential. Other useful conclusions from our

analysis, shown in the chart below, is that the current market price is pricing in a 10-year top-line
CAGR of only 13%, if we assume the company’s margin reaches the level of our base case,
which is fairly conservative. In our opinion, this is well below the company’s growth potential.
Figure 33. BR Properties – Implied Growth Analysis

26%
Implied Market Curve
24%
22%
20%
Santander Base Case
18%
16%
Growth
14%
12%
10%
8%
6%
40% 50% 60% 70% 80% 90% 100%
EBIT Margin
Sources: BR Properties and Santander.
EARNINGS OUTLOOK
Figure 34. BR Properties – Summary of Main Estimates, 2010E-2015E (R$ in Millionsa)
2010E 2011E 2012E 2013E 2014E 2015E
Owned GLA 1084.4 1234.4 1281.3 1281.3 1281.3 1281.3
Revenue 209.1 387.4 456.8 497.3 523.3 547.0
EBITDA 174.6 341.8 408.0 445.3 468.8 490.1
EBITDA Margin 83.5% 88.2% 89.3% 89.5% 89.6% 89.6%
Net Earnings 84.9 117.7 166.1 199.9 235.8 272.6
Net Margin 40.6% 30.4% 36.4% 40.2% 45.1% 49.8%
EPS 0.61 0.85 1.19 1.44 1.69 1.96
FFO 111.8 168.1 225.6 264.6 303.9 343.8
FFO Margin 53.5% 43.4% 49.4% 53.2% 58.1% 62.8%
FFOPS 0.80 1.21 1.62 1.90 2.18 2.47
According to our forecast, BR Properties should invest roughly R$1.2 billion in 2010 mostly in
acquisitions. The company is also developing some greenfield projects (namely Panamerica Park
II, Cidade Jardim, Souza Aranha Building and SJC Business Park), which should be delivered in
2012. After all these investments, the company’s GLA is likely to reach approximately 1.3
million m2 by the end of 2012, of which 69% should be in the industrial/logistic segment
(warehouses, business parks, etc.).

Figure 35. GLA Assumptions, 2009-20121E (‘000m2) Figure 36. GLA Breakdown, 2009-2012E (%)
1400
100%
1200 90%
80%
1000
70%
885 71% 68% 72% 69%
800 885 60%
735
50%
600
40%
400 433 30%
20%
200 342 342 389 28% 32% 28% 30%
173 10%
0 0%
2009 2010E 2011E 2012E 2009 2010E 2011E 2012E
Offices Warehouses and CDs Retail Offices Warehouses and CDs Retail
We are assuming that average consolidated rentals per square meter in the office universe will
grow ahead of forecast inflation, as a result of a change in mix through the acquisition of
properties with higher rental prices than those that are currently in the portfolio. Also, we believe
that BR Properties should be able to pass through real increases as a result of the turnaround of
acquired units, the rollover of expiring contracts at higher prices, and the entrance of the
aforementioned greenfield projects into operation, which are expected to have higher-than-
average rentals. Factoring in all the expected area expansion, BR Properties should present a
three-year top-line CAGR of 57%.
Figure 37. Average Monthly Rent per Type of Property, 2009-2011E (R$/M2)
90 82
80 74
66
70
60
50 41
40
30
15 15 15 17
20
10
-
2009 2010E 2011E 2012E
Office Warehouse and CDs

Figure 38. Rental Revenue, 2009-2012E (R$ Mn) Figure 39. Rental Revenue Breakdown, 2009-2012E (%)
600
100%
500 90%
34% 27% 33%
80% 34%
400 174
70%
142 60%
300
50%
40%
200 62 72%
330 30% 65% 66% 65%
286
100 42 20%
165
80 10%
0 0%
2009 2010E 2011E 2012E 2009 2010E 2011E 2012E
Office Warehouse and CDs Retail Office Warehouse and CDs Retail
Although expenses such as SG&A are mostly fixed, which may bring some operating leverage as
the company grows its portfolio, we are conservatively assuming a slower path of margin
expansion, therefore posting upside risks to our estimates. Furthermore, it is interesting to note
that operating margins for income property companies in Brazil tend to stack up higher compared
with companies in the U.S., particularly because condominium charges (utilities, cleaning,
security, etc.) are paid by the tenants (and not the property owners) and, thus, do not flow
through companies’ P&L, leaving the property companies with a very lean cost structure.
That said, we forecast the company’s EBITDA margin to rise from 78% in 2009 to 88% in 2011,
where it should stabilize. As a result, we estimate that BR Properties will post a 2009-12E
EBITDA CAGR of 65%. Combining a solid EBITDA expansion with a relatively high level of
financial leverage, we expect the company to reach an FFO margin of 44% in 2011E and a three-
year FFOPS CAGR of 33%.
Figure 40. EBITDA (R$ Mn) and Margin (%), 2009-2012E Figure 41. FFO (R$ Mn) and Margin (%), 2009-2012E
450 408 92% 250 60%
226
400 90%
342 50%
88% 200 168
350
86% 40%
300
84% 150
250 30%
82% 112
200 175 100
80%
20%
150
78%
91 45
100 50
76% 10%
50 74%
0 0%
0 72%
2009 2010E 2011E 2012E 2009 2010E 2011E 2012E
EBITDA (LHS) EBITDA Margin (RHS) FFO (LHS) FFO Margin (RHS)
Taking into account all the expected investments, we estimate that the company’s net debt should
peak at R$1.3 billion in 2012, and it should reach a net debt/EBITDA ratio of 3.2x in the same
period.
Figure 42. Net Debt (R$Mn) Ratios, 2009-2014E

1,400 1,315 1,322 8.0x
1,239
1,200 7.0x
1,102
6.0x
1,000
853
5.0x
800
4.0x
600 582
3.0x
400
2.0x
200 1.0x
0 0.0x
2009 2010E 2011E 2012E 2013E 2014E
Net Debt ND/Ebitda (RHS) ND/Equity (RHS)

VALUATION
Our YE2011 target price of R$17.50 per share (US$8.30)was derived from a free cash flow to
firm analysis, using a WACC of 10% in U.S. dollars (12.0 % in reais) and a nominal terminal
growth of 4.5%. We also ran a free cash flow to equity and an economic profit analysis, and we
arrived at the same result using all three methodologies.
Figure 43. BR Properties – Discounted Free Cash Flow Valuation (Reais in Millions1), 2010E-2017E
2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E
Noplat 118 233 279 304 321 335 350 365
Depreciation 27 50 59 65 68 71 74 78
Gross Cash Flow 145 284 338 369 389 406 425 442
Δ in Working Capital (1) (13) (4) (2) (2) (2) (2) (2)
Capex (1,620) (268) (209) (5) (5) (5) (6) (6)
Other Net Assets 123 61 19 10 9 9 10 9
FCFF (1,354) 64 145 372 391 408 426 443
Target EV 2,058 WACC 12.0%

(-) Net Debt (78) Implied P/BV 2011E 1.3x
(-) Minorities -- Implied P/FFO 2011E 14.4x
(=) Equity Value 1,980 Total Return 35.7%
Target Price (R$) 17.50
1
Except for per share prices. Source: Santander estimates.
RISKS
• Overpayment for its acquisitions. As the company’s strategy is based on acquisitions, the
price paid on acquired GLA is key to its consolidated profitability.
• Inability to deliver operating margin expansions. As the company’s profitability is closely
linked to its operating margin, the failure to deliver margin expansions could leave its
profitability below the company’s cost of capital.
• Unexpected increase in vacancy rates. This could hurt the company’s results by increasing
its costs and, consequently, promoting margin compression.
• Eventual lack of financing for real estate projects. The leverage in the industry is very
important, not only because it gives the companies the ability to grow beyond their equity
funding ability, but also because it improves their ROE.
• Execution. The failure to deliver the aggressive expansion targets that it presented.
FINANCIAL STATEMENTS
Figure 44. BR Properties – Income Statement, Balance Sheet, and CF Statement, 2009-2012E
(Millions of Reais)
Income Statement 2009 % 2010E % 2011E % 2012E %
Net Sales 117.3 100.0% 209.1 100.0% 387.4 100.0% 456.8 100.0%
Cost of Sales (16.5) -14.0% (26.9) -12.9% (50.4) -13.0% (59.5) -13.0%
Gross Profit 100.9 86.0% 182.1 87.1% 337.0 87.0% 397.3 87.0%
S, G & A Expenses (42.5) -36.2% (61.4) -29.4% (96.0) -24.8% (108.2) -23.7%
Operating Profit 58.4 49.8% 120.7 57.8% 241.0 62.2% 289.1 63.3%
Net Financial Expenses (42.5) -36.2% (41.4) -19.8% (144.3) -37.2% (140.9) -30.9%
Financial Expenses (60.7) -51.7% (69.4) -33.2% (144.3) -37.2% (140.9) -30.9%
Financial Income 18.2 15.5% 28.0 13.4% 0.0 0.0% 0.0 0.0%
Other Income (Expenses) 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Profit before Taxes 32.4 27.6% 106.3 50.9% 147.2 38.0% 207.6 45.5%
Taxes and Social Contribution (3.4) -2.9% (21.5) -10.3% (29.4) -7.6% (41.5) -9.1%
Profit after Taxes 29.0 24.7% 84.9 40.6% 117.7 30.4% 166.1 36.4%
Equity Income 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Net Profit 29.0 24.7% 84.9 40.6% 117.7 30.4% 166.1 36.4%
D, D &A (16.5) -14.0% (26.9) -12.9% (50.4) -13.0% (59.5) -13.0%
EBITDA 91.3 77.8% 174.6 83.5% 341.8 88.2% 408.0 89.3%
FFO 45.5 38.7% 111.8 53.5% 168.1 43.4% 225.6 49.4%
Balance Sheet 2009 % 2010E % 2011E % 2012E %
Assets 1,662.0 100.0% 3,112.8 100.0% 3,369.3 100.0% 3,530.7 100.0%
Current Assets 130.0 7.8% 54.9 1.8% 79.6 2.4% 87.3 2.5%
Cash and Equivalents 89.4 5.4% 2.7 0.1% 4.3 0.1% 4.8 0.1%
Accounts Receivable 11.2 0.7% 26.4 0.8% 42.0 1.2% 46.9 1.3%
Inventories 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Other current Assets 29.4 1.8% 25.8 0.8% 33.3 1.0% 35.6 1.0%
Long-Term Assets 20.8 1.3% 23.4 0.8% 37.3 1.1% 41.6 1.2%
Net P, P &E 1,487.5 89.5% 3,057.5 98.2% 3,275.4 97.2% 3,424.7 97.0%
Investments 23.6 1.4% 0.8 0.0% 0.8 0.0% 0.8 0.0%
Deferred / Goodwill 0.0 0.0% (23.8) -0.8% (23.8) -0.7% (23.8) -0.7%
Liabilities 731.6 44.0% 1,394.7 44.8% 1,562.8 46.4% 1,599.8 45.3%
Current Liabilities 126.4 7.6% 87.9 2.8% 107.2 3.2% 113.4 3.2%
Accounts Payable 1.2 0.1% 3.3 0.1% 5.3 0.2% 5.9 0.2%
Short-Term Debt 114.6 6.9% 62.1 2.0% 66.0 2.0% 66.4 1.9%
Taxes and Contributions 2.5 0.1% 5.4 0.2% 8.6 0.3% 9.6 0.3%
Other ST Liabilities 8.1 0.5% 17.0 0.5% 27.4 0.8% 31.5 0.9%
Long-Term Debt 556.5 33.5% 1,179.9 37.9% 1,253.6 37.2% 1,260.7 35.7%
Other Liabilities 48.8 2.9% 127.0 4.1% 202.0 6.0% 225.7 6.4%
Minority Interest 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Shareholders Equity 930.4 56.0% 1,718.1 55.2% 1,806.4 53.6% 1,931.0 54.7%
Liabilities and Sh. Equity 1,662.0 100.0% 3,112.8 100.0% 3,369.3 100.0% 3,530.7 100.0%
Cash Flow 2009 2010E 2011E 2012E
Cash Earnings 45.5 111.8 168.1 225.6
Chg. In Working Capital 15.1 (50.0) (3.7) (1.1)
Cash Flow from Operations 60.6 61.8 164.4 224.4
Cash Flow from Investments (349.4) (1,474.7) (207.1) (189.6)
Cash Flow from Financing 255.5 1,326.3 44.3 (34.4)
Net Cash Flow (33.3) (86.7) 1.6 0.5
Beginning Cash 122.7 89.4 2.7 4.3
Ending Cash 89.4 2.7 4.3 4.8

Figure 45. BR Properties – Income Statement, Balance Sheet, and CF Statement, 2009-2012E
(U.S. Dollars in Millions)
Net Sales 58.7 100.0% 114.2 100.0% 191.3 100.0% 215.8 100.0%
Cost of Sales (8.2) -14.0% (14.7) -12.9% (24.9) -13.0% (28.1) -13.0%
Gross Profit 50.5 86.0% 99.5 87.1% 166.4 87.0% 187.7 87.0%
S, G & A Expenses (21.3) -36.2% (33.5) -29.4% (47.4) -24.8% (51.1) -23.7%
Equity Income 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Net Profit 14.5 24.7% 46.4 40.6% 58.1 30.4% 78.5 36.4%
D, D &A (8.2) -14.0% (14.7) -12.9% (24.9) -13.0% (28.1) -13.0%
EBITDA 45.7 77.8% 95.4 83.5% 168.8 88.2% 192.8 89.3%
FFO 22.8 38.7% 61.1 53.5% 83.0 43.4% 106.6 49.4%
Assets 954.7 100.0% 1,596.3 100.0% 1,604.4 100.0% 1,657.6 100.0%
Current Assets 74.7 7.8% 28.1 1.8% 37.9 2.4% 41.0 2.5%
Inventories 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Long-Term Assets 12.0 1.3% 12.0 0.8% 17.7 1.1% 19.5 1.2%
Net P, P &E 854.5 89.5% 1,567.9 98.2% 1,559.7 97.2% 1,607.8 97.0%
Investments 13.6 1.4% 0.4 0.0% 0.4 0.0% 0.4 0.0%
Deferred / Goodwill 0.0 0.0% (12.2) -0.8% (11.3) -0.7% (11.2) -0.7%
Liabilities 420.3 44.0% 715.2 44.8% 744.2 46.4% 751.1 45.3%
Short-Term Debt 65.9 6.9% 31.8 2.0% 31.4 2.0% 31.2 1.9%
Long-Term Debt 319.7 33.5% 605.1 37.9% 597.0 37.2% 591.9 35.7%
Shareholders Equity 534.5 56.0% 881.1 55.2% 860.2 53.6% 906.6 54.7%
Liabilities and Sh. Equity 954.7 100.0% 1,596.3 100.0% 1,604.4 100.0% 1,657.6 100.0%
Cash Flow 2009 2010E 2011E 2012E
Cash Earnings 22.8 61.1 83.0 106.6
Cash Flow from Investments (174.9) (805.7) (102.2) (89.6)
Cash Flow from Financing 127.9 724.6 21.9 (16.2)
Net Cash Flow (10.1) (50.0) 0.7 0.2
Beginning Cash 61.4 51.3 1.4 2.1
Ending Cash 51.3 1.4 2.1 2.3

CCP BUY
A Value Play in the Brazilian Income Property Industry
(5511) 3012-7530 (5511) 3012-7414 (5255) 5269-1931
Investment Thesis: We are introducing our YE2011 target price for

(7/12/10) CCP of R$14.00 (or US$6.70) per share, replacing our YE2010 target
CURRENT PRICE: R$10.00/US$5.67 price of R$18.00 (US$10.00). Our target price implies upside potential
TARGET PRICE: R$14.00/US$6.70 of 40%, and we are maintaining our Buy rating for the stock. Our
positive view is based on the following:
What’s Changed
Rating Unchanged at Buy • Benefits from a premium portfolio. We view CCP’s high quality
Price Target (R$) Introducing YE11: 14.00 portfolio (concentrated in the triple-A segment in premium
EBITDA Estimates (US$ Mn) ’10 to 65.4 from 62.4 locations, where land availability is very limited) as well positioned
’11 to 64.7 from 60.9 to capture rental price appreciation and, at the same time, to endure
’12 to 78.2 from 71.8 a market downturn (unlikely, in our opinion).
Company Statistics • Attractive growth opportunities. CCP’s high quality greenfield

Bloomberg CCPR3.BZ projects should boost growth in the company’s portfolio, with its
52-Week Range (US$) 4.31-7.29 strong profitability remaining unchanged. Furthermore, the
2011E P/E Rel to the Ibovespa (x) 1.28 development of logistic facilities (warehouses and DCs) could also
2011E P/FFO Rel to Real Estate (x) 0.77 represent attractive growth opportunities, as it has a faster
Ibovespa (US$) 35,671 construction cycle. CCP currently has 13 projects in its pipeline,
3-Yr EBITDA CAGR (09-12E) 13% representing 226,000 m2 of GLA to be added mostly after 2012.
Market Capitalization (US$ Mn) 489
Float (%) 60.9% • Partnering with BRMalls to increase exposure to the shopping
52-Week Avg Daily Vol (US$000) 350 center market. CCP and BRMalls have recently announced a
Shares Outst - Mn 86.39 partnership to develop a shopping center in Belo Horizonte. As the
Net Debt/Equity (x) 0.5 primary focus of CCP has always been on the office buildings
Book Value per Share (US$) 2.70 segment, we believe that it will leverage on the knowledge that
BRMalls has of the shopping center market to mitigate execution
Estimates and Valuation Ratios risks in the segment.
2009 2010E 2011E 2012E
Net Earn (R$ Mn) 62.6 66.5 70.2 89.8 • Short-term multiples do not reflect expected growth. Because of
Current EPS 0.72 0.77 0.81 1.04 the long construction cycle in greenfield projects, 2010 and 2011
Net Earn (US$ Mn) 31.3 36.3 34.7 42.4 multiples do not reflect all of the company’s growth prospects, as
Current EPS 0.36 0.42 0.40 0.49 the new GLA should not generate revenue before 2012. In this
P/E (x) 13.9 13.0 12.3 9.6 sense, the multiples analysis could be misleading. Even considering
P/Sales (x) 6.8 6.0 6.1 5.1 this fact, CCP is currently trading at a 2010E P/FFO of 11.5 times,
P/FFO (x) 12.6 11.5 10.9 8.5 which represents a small discount to the sector average.
EV/EBITDA (x) 9.7 8.9 7.8 8.0
EV/Sales (x) 7.3 7.2 6.3 6.5 Valuation and Risks: Our YE2011 price target was derived from a FCF
FCF Yield (%) 6.1 6.5 8.8 -19.2 to firm analysis, using a WACC of 10% in U.S. dollars (12% in reais)
Div per Share (US$) NM 0.19 0.20 0.26 and a nominal terminal growth rate of 4.5%. We also ran a FCF to
Div Yield (%) NM 1.9 2.0 2.6
equity and an economic profit analysis, and we arrived at the same result
Santander estimates. using all three methodologies. Risks include: (1) execution risk of
completing the new projects and renting them at attractive terms; (2)
increasing competition in the AAA segment; (3) macroeconomic and
real estate risks, such as vacancies; and (4) lack of financing for the
sector.

CCP (Cyrela Commercial Properties) is one of the main commercial real estate companies in Brazil, with a focus on
high-end corporate buildings, shopping centers, warehouses and distribution centers. The company also pursues
opportunities to purchase and resell its properties. As of March 2010, CCP had a portfolio of 173,250 m2 in total
GLA, of which 91,050 m2 are in corporate buildings, 41,850 m2 in shopping centers, and 40,350 m2 in
warehouse/distribution centers. The company was spun off from Cyrela Brazil Realty in April 2007, and since August
2007 it has been listed in the Novo Mercado, with a free float of 60.9%.
INVESTMENT THESIS
A PREMIUM PORTFOLIO CONTRIBUTES TO THE HIGH
PROFITABILITY
In our opinion, CCP is a clear value play, which takes advantage of a premium portfolio to
achieve high profitability. Its ROIC is the highest among its peers at 14.2% and is mainly driven
by the higher-than-average rental prices that boost the company’s asset turnover.
Figure 46. Peer Comparison – Average Monthly Rental Prices in the Office Segment (R$/M2)
100
89
90 84
79
80 73
70
70
63
60 56
50 43
40
2009 2010E 2011E 2012E
CCP Peer's Average

One important difference in CCP’s strategy versus that of its peers is the fact that it focuses on
organic growth rather than on acquisitions. In our opinion, this also explains the above-average
profitability, although it poses a higher execution risk and a longer growth cycle. Moreover, we
believe that the development of logistic facilities (warehouses and DCs) could start to present
some attractive growth opportunities, as this sector has a faster construction cycle. CCP currently
has several projects in its pipeline amounting to 174,000 m2 of GLA to be added over current
portfolio.
Another positive move was the company’s recently announced partnership with BR Malls to
develop a shopping center in Belo Horizonte. In our opinion, CCP should leverage on the
company’s knowledge of the shopping center segment to mitigate the execution risk in this
project.
The stock is trading below its fair value when we compare the curve of combinations between
growth and margins implied in current market valuations to our base-case scenario, which is
fairly conservative. As shown in the following chart, our base-case scenario is well above current
market prices, therefore indicating the upside potential.

Figure 47. CCP – Implied Growth Analysis
30%
25%
20%
Growth
15%
Santander Base Case
10%
5%
0%
50% 60% 70% 80% 90% 100%
EBIT Margin
Sources: Santander.
In terms of multiples, CCP is currently, CCP is currently trading at a 2010E P/FFO of 11.5 times,
which represents a small discount to the sector average. This multiple has decreased over the last
months as a result of CCP’s weak stock performance.
Putting it all together and despite of having a high upsides through DCF, CCP story lacks triggers
in the short/medium-term, as earnings should only gain momentum after 2012 (when the
company actually delivers its GLA expansion).
EARNINGS OUTLOOK
We revised our GLA addition and investment assumptions, factoring in the development of
Shopping Estação in Belo Horizonte and the projects that had already been announced did not
have a committed delivery date at the time of our previous report. As a result, CCP’s owned
GLA increased by 14.7% in 2012 which, coupled with the expectation of higher average rents
per m2, explains its top-line growth. We forecast an EBITDA margin of 81% for the next two
years as expenses related to projects that are under development are likely to offset fixed cost
dilution. Finally, we postponed the increase in leverage for 2012E and 2013E, which led us to
improve our FFOPS forecast by 13.4% in 2010E and 13.7% in 2011E.
Figure 48. CCP - Estimates Revision, 2010E–2012E (R$ in Millionsa)
2010E 2011E 2012E
Previous Current Change Previous Current Change Previous Current Change
YE Owned GLA 176.2 173.3 -1.7% 176.2 173.3 -1.7% 218.0 250.1 14.7%
Revenue 140.4 148.2 5.5% 150.1 162.0 7.9% 181.5 203.6 12.2%
EBITDA 114.2 119.7 4.8% 123.2 131.1 6.4% 152.0 165.4 8.8%
EBITDA Margin 81.3% 80.8% -0.6pp 82.1% 80.9% -1.1pp 83.7% 81.2% -2.5pp
Net Earnings 61.4 66.5 8.3% 64.6 70.2 8.7% 74.7 89.8 20.2%
Net Margin 43.7% 44.9% 1.2pp 43.0% 43.3% 0.3pp 41.2% 44.1% 2.9pp
EPS 0.69 0.77 11.1% 0.73 0.81 11.4% 0.87 1.04 19.8%
FFO 67.7 74.8 10.6% 71.5 79.3 10.9% 87.0 101.2 16.4%
FFO Margin 48.2% 50.5% 2.3pp 47.6% 48.9% 1.3pp 47.9% 49.7% 1.8pp
FFOPS 0.76 0.87 13.4% 0.81 0.92 13.7% 1.01 1.17 16.5%
a
Except per share data. Sources: CCP and Santander estimates.
Based on the company’s pipeline, CCP GLA should reach 230,000 m2 by 2012, of which roughly
40% should be in the office segment.

Figure 49. GLA Assumption, 2009-2012E (‘000 M2) Figure 50. GLA Breakdown, 2009-2012E (%)
250
100%
40 90% 23% 23% 18%
200 24%
80%
70%
150 40 40 40 22% 24% 24%
98 60% 43%
38 42 42 50%
100
40%
30% 54%
50 53% 53%
93 91 91 91 20% 40%
10%
0 0%
2009 2010E 2011E 2012E 2009 2010E 2011E 2012E
Offices Shopping Centers Warehouses and CDs Offices Shopping Centers Warehouses and CDs
Sources: CCP and Santander.
Figure 51. CCP - Average Monthly Rent per Type of Property, 2009-2012E (R$/M2)
100
87 89
90 82
80 76
84 87
70 79
73
60
50
40
30 19
17 17 18
20
10
-
2009 2010E 2011E 2012E
Offices Warehouse and CDs Shopping Centers

Sources: CCP and Santander estimates.
We are assuming that the average rent per m2 should grow ahead of forecast inflation as the
scarcity of top-notch properties enables CCP to leverage its portfolio passing through real
increases. Finally, taking into account all the expected investments, we estimate that CCP’s net
debt should peak at R$756 million in 2013, representing a net debt/EBITDA ratio of 3.3 times in
the same period.

Figure 52. CCP – Net Debt Ratios
800 756 3.5x
711
700 3.0x
600
2.5x
500 462
2.0x
400
1.5x
300
185 199 1.0x
200 154
100 0.5x
0 0.0x
2009 2010E 2011E 2012E 2013E 2014E

Sources: CCP and Santander estimates.
VALUATION
Our YE2011 target price of R$14.00 (or US$6.70) was derived from a free cash flow to firm
analysis, using a WACC of 10% in U.S. dollars (12% in reais) and a nominal terminal growth of
4.5%. We also ran a free cash flow to equity and an economic profit analysis. Using all three
methodologies we arrived at the same result.
Figure 53. CCP – Discounted Free Cash Flow Valuation (Reais in Millions1), 2010E-2017E
2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E
Noplat 91 98 123 169 202 223 236 246
Depreciation 8 9 11 16 19 21 22 23
Gross Cash Flow 99 107 135 185 221 244 258 269
Δ in Working
Capital (77) (6) (51) (56) (13) (24) (11) (10)
Capex (4) (5) (281) (277) (44) (79) (12) (12)
Other Net Assets 51 (7) (58) (63) (15) (27) (13) (12)
FCFF 69 89 (255) (211) 149 114 223 235

(-) Minorities (34) Implied P/FFO 2011E 15.4x
1
RISKS
• Execution risk. As CCP has a strong pipeline of greenfield projects, execution is key to
delivering all the projects as planned.
• Increasing competition in the triple-A. This could make it more difficult to negotiate
prices and may put some pressure on rental prices.
• Increase in vacancy rates. An unexpected economic slowdown could increase vacancy
rates and put CCP’s profitability under pressure.
• Lack of funding. This could not only reduce the company’s growth potential but could also
decrease its expected ROE.

Figure 54. CCP – Income Statement, Balance Sheet, and CF Statement, 2009–2012E
(Millions of R$)
Net Sales 144.6 100.0% 148.2 100.0% 162.0 100.0% 203.6 100.0%
Cost of Sales (20.0) -13.8% (15.0) -10.1% (16.1) -10.0% (19.2) -9.4%
Gross Profit 124.6 86.2% 133.2 89.9% 145.8 90.0% 184.4 90.6%
S, G & A Expenses (28.9) -20.0% (30.1) -20.3% (32.9) -20.3% (41.8) -20.5%
Equity Income (12.7) -8.8% (10.3) -7.0% (11.4) -7.0% (11.4) -5.6%
Net Profit 62.6 43.3% 66.5 44.9% 70.2 43.3% 89.8 44.1%
D, D &A (6.6) -4.5% (8.3) -5.6% (9.1) -5.6% (11.4) -5.6%
EBITDA 108.8 75.3% 119.7 80.8% 131.1 80.9% 165.4 81.2%
FFO 69.1 47.8% 74.8 50.5% 79.3 48.9% 101.2 49.7%
Assets 759.0 100.0% 741.1 100.0% 750.7 100.0% 1,141.7 100.0%
Current Assets 108.5 14.3% 123.1 16.6% 130.3 17.4% 193.9 17.0%
Inventories 25.6 3.4% 100.6 13.6% 106.5 14.2% 158.5 13.9%
Long-Term Assets 164.0 21.6% 112.6 15.2% 119.3 15.9% 177.5 15.5%
Net P, P &E 485.1 63.9% 480.8 64.9% 476.5 63.5% 745.8 65.3%
Investments 1.5 0.2% 24.6 3.3% 24.6 3.3% 24.6 2.2%
Deferred / Goodwill 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Liabilities 322.5 42.5% 255.0 34.4% 212.0 28.2% 535.7 46.9%
Short-Term Debt 5.9 0.8% 10.0 1.4% 7.8 1.0% 23.2 2.0%
Long-Term Debt 232.1 30.6% 190.9 25.8% 148.1 19.7% 441.5 38.7%
Liabilities and Sh. Equity 759.0 100.0% 741.1 100.0% 750.7 100.0% 1,141.7 100.0%
Cash Flow 2009 2010E 2011E 2012E
Cash Earnings 69.1 74.8 79.3 101.2
Cash Flow from Operations 193.7 (9.5) 71.9 68.3
Cash Flow from Investments (156.8) 16.4 (11.4) (338.4)
Cash Flow from Financing (49.4) (58.1) (60.4) 270.9
Net Cash Flow (12.6) (51.2) 0.1 0.8
Ending Cash 52.8 1.6 1.7 2.6

Figure 55. CCP - Income Statement, Balance Sheet, and CF Statement, 2009–2012E (U.S.
Dollars in Millions)
Net Sales 72.4 100.0% 81.0 100.0% 80.0 100.0% 96.2 100.0%
Cost of Sales (10.0) -13.8% (8.2) -10.1% (8.0) -10.0% (9.1) -9.4%
Gross Profit 62.4 86.2% 72.8 89.9% 72.0 90.0% 87.1 90.6%
S, G & A Expenses (14.5) -20.0% (16.4) -20.3% (16.3) -20.3% (19.8) -20.5%
Equity Income (6.4) -8.8% (5.7) -7.0% (5.6) -7.0% (5.4) -5.6%
Net Profit 31.3 43.3% 36.3 44.9% 34.7 43.3% 42.4 44.1%
D, D &A (3.3) -4.5% (4.5) -5.6% (4.5) -5.6% (5.4) -5.6%
EBITDA 54.5 75.3% 65.4 80.8% 64.7 80.9% 78.2 81.2%
FFO 34.6 47.8% 40.9 50.5% 39.1 48.9% 47.8 49.7%
Assets 436.0 100.0% 380.0 100.0% 357.5 100.0% 536.0 100.0%
Current Assets 62.3 14.3% 63.1 16.6% 62.1 17.4% 91.1 17.0%
Inventories 14.7 3.4% 51.6 13.6% 50.7 14.2% 74.4 13.9%
Long-Term Assets 94.2 21.6% 57.8 15.2% 56.8 15.9% 83.3 15.5%
Net P, P &E 278.6 63.9% 246.5 64.9% 226.9 63.5% 350.1 65.3%
Investments 0.9 0.2% 12.6 3.3% 11.7 3.3% 11.5 2.2%
Liabilities 185.2 42.5% 130.8 34.4% 101.0 28.2% 251.5 46.9%
Short-Term Debt 3.4 0.8% 5.2 1.4% 3.7 1.0% 10.9 2.0%
Long-Term Debt 133.3 30.6% 97.9 25.8% 70.5 19.7% 207.3 38.7%
Liabilities and Sh. Equity 436.0 100.0% 380.0 100.0% 357.5 100.0% 536.0 100.0%
Cash Flow 2009 2010E 2011E 2012E
Cash Earnings 34.6 40.9 39.1 47.8
Cash Flow from Investments (78.5) 9.0 (5.7) (159.9)
Cash Flow from Financing (24.8) (31.7) (29.8) 128.0
Net Cash Flow (2.4) (29.5) (0.1) 0.4
Ending Cash 30.3 0.8 0.8 1.2
Sources: Company reports and Santander estimates

NOTES

SÃO CARLOS HOLD
On a Lower Growth Path
+5511 3012-7530 +5511 3012-7414 +5255 5269-1931
(7/12/10) Investment Thesis: We are introducing our YE2011 target price of

CURRENT PRICE: R$15.65/US$8.87 R$20.00 (or US$9.70) per share for São Carlos, replacing our YE2010
TARGET PRICE: R$20.00/US$9.70 target price of R$20.00/US$11.00. Our price target implies upside
What’s Changed potential of 27.5%, consistent with a Hold rating. Our view is supported
Rating Unchanged at Hold
by the following:
Price Target (R$) Introducing YE11: 20.00 • Lack of growth prospects. Although there are some acquisitions in
EBITDA Estimates (US$ Mn) ’10 to 66.2 from 61.7
’11 to 76.5 from 59.3
the company’s pipeline, we view this as a replacement for the
’12 to 90.5 from 59.5 recently sold GLA, and, therefore, we do not expect them to
generate earnings expansion.
Company Statistics • Accumulating properties would be a preferred strategy for the
Bloomberg SCAR3.BZ
current market stage. We believe that, in contrast to São Carlos’s
52-Week Range (US$) 7.21-10.49
2011E P/E Rel to the Ibovespa (x) 1.28
strategy of promoting portfolio turnover, accumulating properties at
2011E P/FFO Rel to Real Estate (x) 0.63 the current stage would be preferable, as the company could benefit
Ibovespa (US$) 35,671 from sizeable upsides without increasing execution risks.
3-Yr EBITDA CAGR (09-12E) 14%
Market Capitalization (US$ Mn) 511 • Profitable assets in place. Despite a change in mix following the
Float (%) 35.8% sale of the Eldorado Business Tower in 2Q09, which used to push
52-Week Avg Daily Vol (US$000) 414 average rental prices higher, São Carlos has experienced above-
Shares Outst - Mn 57.61 inflation rental price appreciation, and we believe that this trend
Net Debt/Equity (x) 0.4x
should continue in the coming years.
Book Value per Share (US$) 6.06
• Good execution. As one of the companies with the longest track
Estimates and Valuation Ratios records in the sector, São Carlos has proven over time its ability to
2009 2010E 2011E 2012E deliver accretive acquisitions by targeting promising regions and
Net Earn (R$ Mn) 129.1 100.8 73.2 85.0
repositioning acquired buildings in order to achieve stronger rental
Current EPS (R$) 2.24 1.75 1.27 1.47
64.6 55.1 36.1 40.1
rates per square meter.
Net Earn (US$ Mn)
Current EPS (US$) 1.12 0.96 0.63 0.70 • São Carlos stock is currently trading at 10.4 times 2010E
P/E (x) 7.0 8.9 12.3 10.6 EV/EBITDA and 10.5 times P/FFO, which are slightly below the
P/Sales (x) 6.8 6.4 5.7 4.9
industry’s average.
P/FFO (x) 10.6 10.5 8.9 7.6
EV/EBITDA (x) 8.5 10.4 9.2 7.7 Valuation and Risks: Our YE2011 target price was derived from a FCF
EV/Sales (x) 7.0 8.7 7.9 6.7 to firm analysis, using a WACC of 10.1% in U.S. dollars (12.1% in
FCF Yield (%) 34.4 -16.2 -8.1 1.6 reais) and nominal terminal growth of 4.5%. We also ran FCF/equity
Div per Share (R$) NM 0.35 0.32 0.37 and an economic profit analysis, and all three methodologies ended in
Div Yield (%) NM 2.3 2.0 2.4 the same result. Risks include: (1) execution risk of implementing a
profitable turnover of the company’s portfolio; (2) increasing
competition for acquisitions; (3) macroeconomic and real estate risks,
such as vacancies; and (4) lack of financing for the sector.

São Carlos is one of the main Brazilian commercial real estate companies focused on acquiring, managing, renting
and selling income properties. As of March 2010, São Carlos had a portfolio of properties comprising 371,000 m2 of
total gross leasable area (GLA), including office buildings, distribution centers, street stores and multiuse, mainly
located in the states of São Paulo and Rio de Janeiro.
INVESTMENT THESIS
LACK OF GROWTH IS THE MAIN ISSUE
In our opinion, despite the company’s high quality execution and its having profitable assets in
place, São Carlos lacks a catalyst. We believe the expected GLA additions for the next nine
months would work as a replacement for the recently sold GLA. Therefore, they would not
generate real earnings expansion.
Figure 56. Sale of Properties Resulted in GLA Reduction
600
500
118 118 118 143 143

400 143
43 43 43
300 106 106 106 106 106 101
106 106 106
200
255 255 260 261 261 228 232 241 256

100
0
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10
Offices Retail Warehouses and CDs

Sources: Company reports and Santander.
Furthermore, as shown in the following chart, current company valuations are fairly close to our
base-case assumptions in terms of operating margins, as well as top-line expansion. This analysis
reinforces our more cautious stance on the company’s stock.
Figure 57. São Carlos – Implied Growth Analysis
35%
30%
25%
20%
Growth
15%
Santander Base Case
10%
5%
0%
40% 50% 60% 70% 80% 90% 100%
EBIT Margin
Sources: Santander.

EARNINGS OUTLOOK
We factored in the acquisition of the Real and Sul America buildings, the sale of nine street
stores, and incorporated additional acquisition growth for the next years. As a result, the
projected GLA expanded by 15.3% and 21.9% in 2011E and 2012E, respectively, compared with
our previous estimates. Coupled with the premise of a higher average rent per m2, we believe this
justifies the expectation of a stronger top line. The cash deployment in acquisitions took its toll
on São Carlos’s financial results projections, leading to a weaker margin at the bottom line.
Figure 58. São Carlos – Estimates Revision, 2010E-2012E (R$ in Millions*)

2010E 2011E 2012E
2
YE Owned GLA (m ) 380.5 388.7 2.2% 380.5 438.7 15.3% 380.5 463.7 21.9%
Revenue 135.7 145.6 7.3% 144.2 180.7 25.3% 151.2 218.8 44.7%
EBITDA 112.9 121.2 7.3% 120.0 154.9 29.1% 125.9 191.6 52.2%
EBITDA Margin 83.2% 83.2% 0.0pp 83.2% 85.8% 2.5pp 83.2% 87.6% 4.3pp
Net Earnings 61.9 100.8 63.0% 70.7 73.2 3.5% 79.8 85.0 6.5%
Net Margin 45.6% 69.3% 23.7pp 49.0% 40.5% -8.5pp 52.8% 38.8% -13.9pp
EPS 1.07 1.75 63.0% 1.23 1.27 3.5% 1.39 1.47 6.5%
FFO 82.9 86.2 3.9% 91.9 100.9 9.8% 101.1 118.5 17.2%
FFO Margin 61.1% 59.2% -1.9pp 63.7% 55.8% -7.9pp 66.9% 54.2% -12.7pp
FFOPS 1.44 1.50 3.9% 1.60 1.75 9.8% 1.76 2.06 17.2%
*Except per share data. Sources: Company reports and Santander estimates.
Based on the company’s pipeline, São Carlos’s GLA should reach 464,000 m2 by 2012, of which
roughly 80% should be in the office segment.
Figure 59. GLA Assumption, 2009-2012E (’000 M2) Figure 60. GLA Breakdown, 2009-2012E (%)
500
100%
450 43 11% 11% 10% 9%
90%
400 43 48 11% 10%
80% 12%
43 43 48
350 27%
48 70%
300 106
60%
250
50%
200 373
348 40% 77% 79% 80%
150 298
241 30% 62%
100
50 20%
- 10%
2009 2010E 2011E 2012E 0%
2009 2010E 2011E 2012E
Sources: São Carlos and Santander estimates.

Figure 61. São Carlos - Average Monthly Rent per Type of Property, 2009-2012E (R$/ M2)
60
51
46 47
50 44
40
30
20 14
13 12 13
10 13 10
10 9
-
2009 2010E 2011E 2012E
Office Warehouse and CDs Multiuse
Taking into account all the expected investments, we estimate that São Carlos’s net debt should
peak at R$575 million in 2012, representing a net debt/EBITDA ratio of 3.0 times in the same
period.
Figure 62. São Carlos – Net-Debt Ratios

700 4.0x
600 575 3.5x

528
482 3.0x
500
2.5x
400 360 374
2.0x
300
1.5x
200 144 1.0x
100 0.5x
0 0.0x
2009 2010E 2011E 2012E 2013E 2014E

VALUATION
We arrived at our YE2011 target price of R$20.00 (or US$9.70) through a free cash flow to firm
analysis, using a WACC of 10.1% in U.S. dollars (12.1% in reais) and nominal terminal growth
of 4.5%. We also ran a free cash flow to equity and an economic profit analysis, and we arrived
at the same result using all three methodologies.
Figure 63. São Carlos – Discounted Free Cash Flow Valuation (Reais in Millions1), 2010E-2017E
2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E
Noplat 84 108 134 145 154 162 171 180
Depreciation 22 28 34 36 38 40 43 45
Gross Cash Flow 107 136 168 181 192 202 214 225
Δ in Working Capital (96) (25) (23) (10) (9) (9) (10) (10)
Capex (211) (227) (122) (9) (10) (11) (11) (12)
Other Net Assets (4) (1) (1) (0) (0) (0) (0) (0)
FCFF (204) (116) 23 161 173 182 192 203

(-) Minorities - Implied P/FFO 2011E 11.6x
(=) Equity Value 960 Total Return 27.5%
1
RISKS
• Execution risk. As the company’s strategy is based on the turnover of the portfolio,
execution is key to deliver results above cost of capital profitability.
• Uptick in vacancy rates. An unexpected economic slowdown could increase vacancy rates
and put the company’s profitability under pressure.
• Lack of funding for the industry. This could reduce the company’s growth potential and
lead to a decrease in expected ROE.

Figure 64. São Carlos – Income Statement, Balance Sheet, and CF Statement, 2009-2012E
(Millions of R$)
Net Sales 149.3 100.0% 145.6 100.0% 180.7 100.0% 218.8 100.0%
Cost of Sales (22.3) -14.9% (22.1) -15.2% (27.7) -15.3% (33.5) -15.3%
Gross Profit 127.1 85.1% 123.5 84.8% 153.0 84.7% 185.3 84.7%
S, G & A Expenses (48.7) -32.6% (46.5) -32.0% (53.4) -29.6% (60.7) -27.8%
Equity Income 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Net Profit 129.1 86.4% 100.8 69.3% 73.2 40.5% 85.0 38.8%
D, D &A (22.3) -14.9% (22.1) -15.2% (27.7) -15.3% (33.5) -15.3%
EBITDA 122.9 82.3% 121.2 83.2% 154.9 85.8% 191.6 87.6%
FFO 84.8 56.8% 86.2 59.2% 100.9 55.8% 118.5 54.2%
Assets 1,221.4 100.0% 1,087.1 100.0% 1,318.1 100.0% 1,435.6 100.0%
Current Assets 463.6 38.0% 131.1 12.1% 162.1 12.3% 190.7 13.3%
Inventories 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Long-Term Assets 0.1 0.0% 3.6 0.3% 4.4 0.3% 5.2 0.4%
Net P, P &E 756.6 61.9% 945.8 87.0% 1,145.0 86.9% 1,233.0 85.9%
Investments 0.0 0.0% 5.4 0.5% 5.4 0.4% 5.4 0.4%
Liabilities 618.5 50.6% 403.7 37.1% 579.9 44.0% 633.6 44.1%
Short-Term Debt 80.6 6.6% 18.1 1.7% 26.5 2.0% 28.9 2.0%
Long-Term Debt 482.9 39.5% 343.1 31.6% 503.7 38.2% 548.5 38.2%
Cash Flow 2009 2010E 2011E 2012E
Cash Earnings 151.4 123.0 100.9 118.5
Cash Flow from Financing (78.0) (160.2) 142.3 23.6
Net Cash Flow 317.2 (418.1) 0.4 0.3
Beginning Cash 102.5 419.7 1.5 1.9
Ending Cash 419.7 1.5 1.9 2.2

Figure 65. São Carlos – Income Statement, Balance Sheet, and CF Statement, 2009-2012E (U.S.
Net Sales 74.8 100.0% 79.5 100.0% 89.2 100.0% 103.4 100.0%
Cost of Sales (11.1) -14.9% (12.1) -15.2% (13.7) -15.3% (15.8) -15.3%
Gross Profit 63.6 85.1% 67.5 84.8% 75.5 84.7% 87.5 84.7%
S, G & A Expenses (24.4) -32.6% (25.4) -32.0% (26.4) -29.6% (28.7) -27.8%
Equity Income 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Net Profit 64.6 86.4% 55.1 69.3% 36.1 40.5% 40.1 38.8%
D, D &A (11.1) -14.9% (12.1) -15.2% (13.7) -15.3% (15.8) -15.3%
EBITDA 61.5 82.3% 66.2 83.2% 76.5 85.8% 90.5 87.6%
FFO 42.5 56.8% 47.1 59.2% 49.8 55.8% 56.0 54.2%
Assets 701.7 100.0% 557.5 100.0% 627.7 100.0% 674.0 100.0%
Current Assets 266.3 38.0% 67.2 12.1% 77.2 12.3% 89.5 13.3%
Inventories 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Long-Term Assets 0.0 0.0% 1.8 0.3% 2.1 0.3% 2.4 0.4%
Net P, P &E 434.7 61.9% 485.0 87.0% 545.2 86.9% 578.9 85.9%
Investments 0.0 0.0% 2.8 0.5% 2.6 0.4% 2.5 0.4%
Liabilities 355.3 50.6% 207.0 37.1% 276.1 44.0% 297.5 44.1%
Short-Term Debt 46.3 6.6% 9.3 1.7% 12.6 2.0% 13.6 2.0%
Long-Term Debt 277.4 39.5% 176.0 31.6% 239.9 38.2% 257.5 38.2%
Liabilities and Sh. Equity 701.7 100.0% 557.5 100.0% 627.7 100.0% 674.0 100.0%
Cash Flow 2009 2010E 2011E 2012E
Cash Earnings 75.8 67.2 49.8 56.0
Cash Flow from Financing (39.0) (87.5) 70.3 11.1
Net Cash Flow 189.8 (240.2) 0.1 0.2
Beginning Cash 51.3 241.1 0.8 0.9
Ending Cash 241.1 0.8 0.9 1.1

NOTES

BRMALLS BUY
Delivering Growth and Profitability; Upgrading to Buy
Flavio Queiroz* Fabíola Gama* Gonzalo Fernández*
+5511 3012-7530 +5511 3012-7414 +5255 5269-1931

CURRENT PRICE: R$23.63/US$13.39 R$32.50 (or US$15.50) per share for BRMalls, replacing our YE2010
TARGET PRICE: R$32.50/US$15.50 target price of R$28.00/US$15.00 and upgrading our rating for the stock
to Buy from Hold. Our target price implies upside potential of 37.5%
What’s Changed and our positive view is supported by:
Rating To Buy from Hold
Price Target (R$) Introducing YE11: 32.50 • Strong growth prospects. Combining both acquisitions and
EBITDA Estimates (US$ Mn) '10 to 223.5 from 236.8 greenfield projects, we expect BRMalls to present a three-year top-
'11 to 262.6 from 267.8 line CAGR of 32% following a GLA expansion of 18% per year
'12 to 337.7 from 293.6
during the same period.
Company Statistics • Robust track record in turning around acquired units. This is a
Bloomberg BRML3.BZ key pillar of our investment thesis for the company, as the ability to
52-Week Range (US$) 7.46-14.32
promote operating turnaround at acquired units is a key driver for its
consolidated profitability. Thus, we are forecasting growth for its
2011E P/E Rel to Real Estate (x) 1.13
profitability in the coming years.
Market Capitalization (US$ Mn) 2,710
• Growing rental prices. Over the last three years, BRMalls has
Float (%) 71.2% managed to deliver well above inflation growth on rental prices as a
52 Week Avg Daily Vol (US$000) 10,014 result of the combination of repositioning of shopping centers and
Shares Outst - Mn 202.41 the renegotiation of expired contracts at higher prices. Based on the
Net Debt/Equity (x) 0.1x company’s excellent track record, we expect this trend to continue
Book Value per Share (US$) 14.02 in the coming years.
Estimates and Valuation Ratios • BRMalls is currently trading at 15.2 times 2010E EV/EBITDA and
2009A 2010E 2011E 2012E 17.7 times 2010E P/FFO, which is slightly higher than the
Net Earn (R$ Mn) 1,071.6 260.4 289.9 426.8 industry’s average. This premium is justified by the company’s
Current EPS 5.56 1.32 1.47 2.15 stronger growth profile because, if adjusted for this effect, BRMalls
Net Earn (US$ Mn) 536.5 142.3 143.2 201.7 ends up trading in line with the sector’s average (11.5 times
Current EPS 2.78 0.72 0.72 1.01 EV/EBITDA and 15.3 times P/FFO for 2011E).
P/E (x) 4.2 17.9 16.1 11.0
P/Sales (x) 13.7 9.8 8.2 6.4 Valuation and Risks: We arrived at our YE2011 target price based on a
P/FFO (x) 17.0 17.7 16.0 10.9
free cash flow to firm analysis, using a WACC of 11.7% in reais (9.7%
EV/EBITDA (x) 16.3 15.2 13.1 10.9
12.9 12.3 10.4 8.7
in U.S. dollars), and nominal terminal growth of 4.5%. We also ran a
EV/Sales (x)
FCF Yield (%) NM -12.5 -6.8 -6.7
free cash flow to equity and an economic profit analysis, and all three
Div per Share (US$) NM 0.25 0.36 0.53 methodologies led to the same result. Risks include: (1) profitability
Div Yield (%) NM 1.1 1.5 2.2 deterioration as a result of excessive industry expansion; (2) an increase in
NM not meaningful. Sources: Bloomberg, Company Reports, and vacancy rates following macroeconomic slowdown; (3) a longer-than-
Santander estimates. expected ramp-up in greenfield projects; (4) lack of funding for the
industry; and (5) overpayment for in acquisitions.

BRMalls Participações S/A is one of the largest shopping center owner/operator in Brazil. The company has the most
geographically diversified portfolio with a presence in all regions of Brazil. As of the latest figures (March 2010), it
had an interest in 35 malls, with an owned GLA of 467,700 m2, and an average stake of 45.2% in its mall portfolio,
which is mostly managed by the company. In addition, the company has five greenfield projects currently under
development. BRMalls is listed on Bovespa’s Novo Mercado and has a free float of 71.2%.
INVESTMENT THESIS
PROVEN TRACK RECORD IN ACCRETIVE ACQUISITIONS
In our opinion, BR Malls has already proven its ability to deliver significant operating
turnarounds in acquired shopping centers, which is key to making its acquisitions accretive. The
main indicator of success in this strategy has been the consistent growth in revenue per square
meter, which boosts the company’s asset turnover, consequently improving consolidated
profitability.
Figure 66. BRMalls – 12-Month Trailing Revenue per M2 (R$ 000)

100
98
96
94
92
90
88
86
84
82
80
Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10
Sources: Santander.
We highlight BRMalls’s efficiency in controlling corporate expenses, as the company’s has

one of the lowest ratios of SG&A as percentage of revenue, which we believe is one of the
main reasons behind its strong operating margins. In addition, BRMalls plans to pursue
growth opportunities this year, which should work as a catalyst for stock’s performance.
According to our estimates, the company should present further GLA expansion in the period and
consolidate itself as the leading shopping center company in terms of GLA and revenue.
Moreover, we note that the implied combinations of margin and top-line expansion in current
market valuation are not pricing in this growth potential. If we assume an operating margin of
82% (in line with our base case and the company’s historical performance), market prices would
imply a 10-year top-line CAGR of only 13% (in nominal terms). This is below the company’s
earnings potential, in our opinion.

Figure 67. BRMalls – Implied Growth Analysis
25%
20%
Santander Base Case

Growth
15%
10%
5%
45% 55% 65% 75% 85% 95% 105%
EBIT Margin
Sources: BRMalls and Santander.
EARNINGS OUTLOOK
We are reviewing our estimates for the company to reflect an updated assumption for the delivery
dates of new projects and assuming a more moderate pace of acquisitions for 2010E.
Nevertheless, we expect 2011 and 2012 to be strong years in terms of acquisitions. The net result
of the more back-ended GLA addition schedule coupled with increases in average rental per m²
was an expansion in our top-line estimates for the 2011E-20121E period. Nevertheless, these
additions were partially offset by a lower estimated EBITDA margin, as the company may face
additional expenses related to projects that are under development. Overall, we expect BRMalls’s
EBITDA margin to oscillate between 80% and 81% in the next two to three years.
In terms of estimates, in order to take into account the company’s decision to recognize the fair
value of its assets in its balance sheet, we have eliminated the depreciation line in the income
statement, which had a positive effect on EPS. The FFOPS, which is not affected by the
aforementioned accounting change, is expected to increase by over 60% in 2012 vs. 2010E
figures, mainly due to the expectation of higher average rent per m2.
Figure 68. BRMalls – Estimates Revisions, 2010E–2012E (R$ in Millionsa)

2010E 2011E 2012E
Previous Current Change Previou Current Change Previous Current Change
YE Owned GLA 585.9 529.7 -9.6% 657.0 610.2 -7.1% 732.4 774.1 5.7%
Revenue 529.3 507.7 -4.1% 659.7 665.2 0.8% 756.9 890.6 17.7%
EBITDA 433.4 409.1 -5.6% 542.2 531.8 -1.9% 621.4 714.6 15.0%
EBITDA Margin 81.9% 80.6% -1.3pp 82.2% 79.9% -2.2pp 82.1% 80.2% -1.9pp
Net Earnings 229.7 260.4 13.4% 244.6 289.9 18.5% 332.2 426.8 28.5%
Net Margin 43.4% 51.3% 7.9pp 37.1% 43.6% 6.5pp 43.9% 47.9% 4.0pp
EPS 1.13 1.32 16.6% 1.21 1.47 21.5% 1.64 2.15 30.7%
FFO 300.5 269.6 -10.3% 351.2 299.5 -14.7% 405.9 436.9 7.6%
FFOPS 1.48 1.33 -10.3% 1.74 1.48 -14.7% 2.01 2.16 7.6%
a
Except per share data. Sources: BRMalls and Santander estimates.

Based on the company’s greenfield pipeline and our expectations regarding acquisitions, we view
BRMalls’s GLA evolving as shown in the chart below.
Figure 69. BRMalls - GLA Evolution, 2009-2014E (‘000m2)

900 40 854
40
800 94
700 -
66
600 70
25
500 454 15
390
400 50
300
200
100
0
2008 2009 2010E 2011E 2012E 2013E 2014E
Sources: BRMalls and Santander estimates.
We estimate growing average revenue per m2 stemming from operating turnarounds in acquired
units and readjustments in expiring contracts.
Figure 70. BRMalls – Monthly Rental Revenue and Avg. Rent per m2, 2009-2012E (R$)
900 90
84
800 77 752 80
70
700 63 70
R$ Millions
600 557 60
500 50
R$
419
400 40
326
300 30
200 20
100 10
- 0
2009 2010E 2011E 2012E
Rental Revenues (LHS) Avg. Rent (RHS)
Taking into account all the expected investments, we estimate that the company’s net debt will
peak at R$2.9 billion in 2012, representing a net debt/EBITDA ratio of 4.2 times in the same
period.

Figure 71. BRMalls – Net Debt Ratios
3,500 2,985 4.5x
2,953 2,936 4.0x
3,000
3.5x
2,500 2,168 3.0x
2,000 2.5x
1,500 1,438 2.0x

1.5x
1,000
1.0x
503
500
0.5x
0 0.0x
2009 2010E 2011E 2012E 2013E 2014E

VALUATION
Our YE2011 target price of R$32.50 (or US$15.50) per share is based on a free cash flow to firm
analysis, using a WACC of 11.7% reais (9.7% in U.S. dollars) and a nominal terminal growth of
4.5%. We also ran a free cash flow to equity and an economic profit analysis, and all three
methodologies arrived at the same result.
Figure 72. BRMalls – Discounted Free Cash Flow Valuation (Reais in Millions1), 2010E-2017E
2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E
Noplat 375 483 645 773 874 977 1,044 1,160
Depreciation 2 2 3 3 3 3 3 3
Gross Cash Flow 376 486 647 776 878 980 1,048 1,163
Δ in Working Capital (21) (27) (44) (26) (23) (26) 13 (20)
Capex (1,109) (902) (1,067) (300) (404) (416) 98 109
Other Net Assets (25) (32) (53) (31) (27) (31) 11 (24)
FCFF (779) (474) (517) 419 424 506 1,169 1,228

(-) Net Debt (2,122) Implied P/BV 2011E 1.2x
1
RISKS
• Profitability deterioration. Excessive shopping center industry growth could result in a
reduction in the company’s profitability.
• Downturn in retail sales. This could lead to an unexpected increase in vacancy rates
and/or downside in rental prices.
• Longer-than-expected ramp-up in new greenfield projects. This could negatively
affect the company’s profitability.
• Lack of funding for the sector. As we believe that leverage is an important driver to
improve companies’ ROE, lack of funding could change the industry’s level of returns as
well as cap its growth potential.
• Overpaying acquisitions. As the company’s story is closely linked to acquisitions,
overpaying for these acquisitions could hurt its consolidated profitability.
Figure 73. BRMalls – Income Statement, Balance Sheet, and CF Statement, 2009–2012E
(Millions of R$)
Net Sales 395.1 100.0% 507.7 100.0% 665.2 100.0% 890.6 100.0%
Cost of Sales (32.2) -8.2% (44.4) -8.8% (54.7) -8.2% (72.2) -8.1%
Gross Profit 362.9 91.8% 463.3 91.2% 610.5 91.8% 818.4 91.9%
S, G & A Expenses (84.8) -21.5% (56.1) -11.0% (81.2) -12.2% (106.4) -12.0%
Other Income (Expenses) 1,238.3 313.4% (7.4) -1.5% (7.2) -1.1% (7.5) -0.8%
Profit before Taxes 1,509.8 382.1% 280.0 55.1% 310.7 46.7% 465.5 52.3%
Profit after Taxes 1,074.2 271.9% 261.7 51.6% 289.9 43.6% 426.8 47.9%
Equity Income (2.7) -0.7% (1.4) -0.3% 0.0 0.0% 0.0 0.0%
Net Profit 1,071.6 271.2% 260.4 51.3% 289.9 43.6% 426.8 47.9%
D, D &A (34.7) -8.8% (1.9) -0.4% (2.5) -0.4% (2.6) -0.3%
EBITDA 312.8 79.2% 409.1 80.6% 531.8 79.9% 714.6 80.2%
FFO 271.3 68.7% 269.6 53.1% 299.5 45.0% 436.9 49.1%
Assets 8,463.3 100.0% 8,548.6 100.0% 9,558.5 100.0% 10,811.7 100.0%
Current Assets 1,249.9 14.8% 230.2 2.7% 284.7 3.0% 375.5 3.5%
Cash and Equivalents 1,066.8 12.6% 6.7 0.1% 8.4 0.1% 11.4 0.1%
Inventories 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Long-Term Assets 239.3 2.8% 244.9 2.9% 308.1 3.2% 413.4 3.8%
Net P, P &E 1,904.4 22.5% 2,384.4 27.9% 2,797.5 29.3% 3,280.8 30.3%
Investments 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Deferred / Goodwill 5,069.7 59.9% 5,689.1 66.6% 6,168.2 64.5% 6,742.0 62.4%
Liabilities 3,395.4 40.1% 3,262.6 38.2% 4,055.1 42.4% 4,988.2 46.1%
Short-Term Debt 172.2 2.0% 72.3 0.8% 108.8 1.1% 149.8 1.4%
Long-Term Debt 1,397.6 16.5% 1,372.8 16.1% 2,067.4 21.6% 2,846.6 26.3%
Other Liabilities 1,691.0 20.0% 1,689.8 19.8% 1,721.4 18.0% 1,774.1 16.4%
Shareholders Equity 4,999.5 59.1% 5,217.6 61.0% 5,435.0 56.9% 5,755.1 53.2%
Cash Flow 2009 2010E 2011E 2012E
Cash Earnings 1,116.9 269.6 299.5 436.9
Chg. In Working Capital 81.1 (147.1) 13.6 13.3
Cash Flow from Operations 1,198.0 122.5 313.1 450.3
Cash Flow from Investments (3,122.3) (1,115.5) (933.5) (1,119.8)
Cash Flow from Financing 2,232.6 (67.2) 622.2 672.5
Net Cash Flow 308.3 (1,060.1) 1.8 3.0
Beginning Cash 758.5 1,066.8 6.7 8.4
Ending Cash 1,066.8 6.7 8.4 11.4

Figure 74. BRMalls —Income Statement, Balance Sheet, and CF Statement, 2009–2012E (U.S.
Net Sales 197.8 100.0% 277.4 100.0% 328.5 100.0% 420.8 100.0%
Cost of Sales (16.1) -8.2% (24.3) -8.8% (27.0) -8.2% (34.1) -8.1%
Gross Profit 181.7 91.8% 253.1 91.2% 301.5 91.8% 386.7 91.9%
S, G & A Expenses (42.5) -21.5% (30.6) -11.0% (40.1) -12.2% (50.3) -12.0%
Other Income (Expenses) 619.9 313.4% (4.0) -1.5% (3.5) -1.1% (3.5) -0.8%
Equity Income (1.3) -0.7% (0.7) -0.3% 0.0 0.0% 0.0 0.0%
Net Profit 536.5 271.2% 142.3 51.3% 143.2 43.6% 201.7 47.9%
D, D &A (17.4) -8.8% (1.0) -0.4% (1.2) -0.4% (1.2) -0.3%
EBITDA 156.6 79.2% 223.5 80.6% 262.6 79.9% 337.7 80.2%
FFO 135.8 68.7% 147.3 53.1% 147.9 45.0% 206.5 49.1%
Assets 4,861.7 100.0% 4,383.9 100.0% 4,551.7 100.0% 5,075.9 100.0%
Current Assets 718.0 14.8% 118.1 2.7% 135.6 3.0% 176.3 3.5%
Inventories 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Long-Term Assets 137.5 2.8% 125.6 2.9% 146.7 3.2% 194.1 3.8%
Net P, P &E 1,094.0 22.5% 1,222.8 27.9% 1,332.1 29.3% 1,540.3 30.3%
Investments 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Deferred / Goodwill 2,912.3 59.9% 2,917.5 66.6% 2,937.2 64.5% 3,165.2 62.4%
Liabilities 1,950.5 40.1% 1,673.1 38.2% 1,931.0 42.4% 2,341.9 46.1%
Short-Term Debt 98.9 2.0% 37.1 0.8% 51.8 1.1% 70.3 1.4%
Long-Term Debt 802.9 16.5% 704.0 16.1% 984.5 21.6% 1,336.4 26.3%
Cash Flow 2009 2010E 2011E 2012E
Cash Earnings 559.2 147.3 147.9 206.5
Cash Flow from Investments (1,563.2) (609.4) (461.0) (529.1)
Cash Flow from Financing 1,117.7 (36.7) 307.2 317.8
Net Cash Flow 233.0 (609.4) 0.6 1.3
Beginning Cash 379.7 612.8 3.4 4.0
Ending Cash 612.8 3.4 4.0 5.4

NOTES

IGUATEMI BUY
High Quality GLA Expansion Ahead
+5511 3012-7530 +5511 3012-7414 +5255 5269-1931

CURRENT PRICE: R$31.60/US$17.90 R$41.00 (or US$19.50) per share for Iguatemi, which implies potential
TARGET PRICE: R$41.00/US$19.50 upside of 29.7%, and replaces our YE2010 target price of
R$40.00/US$22.00. We are maintaining our Buy rating for the
What’s Changed company’s stock. Our positive view on the company is based on the
Rating Unchanged at Buy following:
Price Target (R$) Introducing YE11 41.00
EBITDA Estimates (US$ Mn) '10 to 95.1 from 89.9 • Interesting in-house growth potential. Following the R$400-
'11 to 111.3 from 111 million equity offer, Iguatemi intends to more than double its
'12 to 135.9 from 146.4 current GLA, reaching 520,000 m2 by 2014. Interestingly enough,
the lion’s share of such growth is in-house, either through
Company Statistics expansions or greenfield projects, which mitigates the execution
Bloomberg IGTA3.BZ risk in our view.
52-Week Range (US$) 9.17-19.52
• Projects in the pipeline should improve consolidated
2011E P/FFO Rel to Real Estate (x) 0.93
profitability. We expect the greenfield projects to enhance
Ibovespa (US$) 34,484 Iguatemi’s average rent per m2 due to their premium characteristics
3-Yr EBITDA CAGR (09-12E) 21% (high-end malls in top locations), and therefore promote an
Market Capitalization (US$ Mn) 1,418 improvement in profitability.
Float (%) 35.8% • Delivery of additional GLA should be a catalyst for stock
52-Week Avg Daily Vol (US$000) 2,206
performance. Three out of the five greenfield projects are
Shares Outst - Mn 79.23
-0.2
scheduled to startup as early as 2011, adding over 69,000 m2 to the
Net Debt/Equity (x)
Book Value per Share (US$) 9.96 company’s portfolio and creating positive earnings momentum.
• Pre-operational expenses could pressure margins. Expenses
Estimates and Valuation Ratios related to projects that are under development used to be capitalized
2009 2010E 2011E 2012E in the past, but after the migration to the IFRS accounting system,
Net Earnings (R$ Mn) 86.4 122.4 147.4 175.9 these expenses will be booked as they occur. As a result, the
Current EPS 1.27 1.54 1.86 2.22 company’s reported margin should remain pressured during growth
Net Earn (US$ Mn) 43.3 66.9 72.8 83.1 periods.
Current EPS 0.63 0.84 0.92 1.05
P/E (x) 25.0 20.5 17.0 14.2
• Highest payout in the sector. Even considering the strong cash
P/Sales (x) 13.0 10.2 8.8 7.4 flow consumption over the next four years due to the planned GLA
P/FFO (x) 18.3 15.9 13.1 11.0 expansion, we do not foresee any change in the 50% payout policy,
EV/EBITDA (x) 12.3 14.3 11.2 10.1 as combining both effects, the company’s leverage should not
EV/Sales (x) 8.6 9.7 7.8 7.1 exceed 2.6x net debt/EBITDA.
FCF Yield (%) -3.9 -8.9 0.6 -9.1
• Attractive relative valuation. Iguatemi trades at P/FFO multiples
Div per Share (US$) 0.73 0.62 0.93 1.11
of 13.1 times and 11.0 times, respectively, for 2011E and 2012E,
Div Yield (%) 2.3 2.0 2.9 3.5
Sources: Bloomberg, Company Reports, and Santander estimates.
implying a discount to the shopping center industry of 15%, on
average.
Valuation and Risks: Our YE2011 target was derived from a FCF to
firm analysis, using a WACC of 11.8% in reais (9.8% in U.S. dollars)
and a nominal terminal growth of 4.5%. We also ran a free cash flow to
equity and an economic profit analysis, and we arrived at the same result
using all three methodologies. Risks include: (1) profitability
deterioration; (2) a downturn in retail sales; (3) longer-than-expected
ramp-up of the greenfield projects; and (4) regional concentration.

Iguatemi Empresa de Shopping Centers S/A (IESC) is one of the largest full-service companies in the Brazilian
shopping centers sector. As of March 2010, the company held interest in 12 malls, with an owned GLA of 236,700 m2,
boasting an average stake of 55% in its mall portfolio. Furthermore, Iguatemi currently has 5 projects under
development. The company is listed in the Novo Mercado and presents a free float of 35.8%.
INVESTMENT THESIS
In our opinion, following the delivery of the upcoming organic growth, Iguatemi should present a
significant improvement in its consolidated profitability, as the new shopping centers should
further boost the company’s average revenue per square meter due to their premium
characteristics.
According to our estimates, Iguatemi should double its current GLA until the end of 2014 mainly
through organic expansion (greenfield and expansion). Based on this assumption, we believe that
Iguatemi presents a very attractive combination of growth and profitability improvement. It is
also important to mention that most of this expected growth is already in house, which we
believe mitigates the execution risk.
Figure 75. Iguatemi - GLA Evolution, 2009-2014E (‘000 M2)

600
58 525
500
80
400
74 6
50
300 -
215
213 27
200 15
100
0
2008 2009 2010E 2011E 2012E 2013E 2014E
Sources: Iguatemi and Santander estimates.
As shown in the following chart, the current market valuation is not pricing in the company’s
growth potential. Also, if we consider the current operating margin, the implied growth on
market valuation would be only 13% (in nominal terms), which is below the company’s
potential.

Figure 76. Iguatemi – Implied Growth Analysis
30%

25%
20%
15% Santander Base

Growth
10%
5%
0%
35% 45% 55% 65% 75% 85% 95%
EBIT Margin
Sources: Santander.
EARNINGS OUTLOOK
We fine-tuned our forecasts after incorporating 1Q10 results, updated the delivery date of the
company’s projects and added its fifth greenfield project, Iguatemi São José do Rio Preto.
Although we are making minor changes to our top-line estimate for the next two years, we
reduced our top-line forecast for 2012 by 8% due to our conservative assumption of some delay
in some projects. We forecast EBITDA to oscillate between 68% and 70%, pretty much in line
with the company’s guidance. The weaker top line in 2012, however, is partially reflected at the
FFOPS, which we expect to stood at R$2.87 in the same period.
Figure 77. Iguatemi - Estimates Revisions, 2010E–2012E (R$ in Millionsa)

2010E 2011E 2012E
YE Owned GLA 232.2 241.7 4.1% 305.6 330.6 8.2% 391.5 337.1 -13.9%
Revenue 248.4 255.3 2.8% 329.4 324.8 -1.4% 442.8 407.9 -7.9%
EBITDA 164.5 174.0 5.8% 224.7 225.3 0.3% 309.8 287.5 -7.2%
EBITDA Margin 66.2% 68.2% 1.9pp 68.2% 69.4% 1.1pp 70.0% 70.5% 0.5pp
Net Earnings 122.4 122.4 0.0% 142.1 147.4 3.7% 186.8 175.9 -5.8%
Net Margin 49.3% 47.9% -1.3pp 43.1% 45.4% 2.2pp 42.2% 43.1% 0.9pp
EPS 1.52 1.54 1.6% 1.77 1.86 5.4% 2.32 2.22 -4.3%
FFO 159.7 157.9 -1.2% 187.5 191.0 1.9% 235.6 227.5 -3.4%
FFO Margin 64.3% 61.8% -2.5pp 56.9% 58.8% 1.9pp 53.2% 55.8% 2.6pp
FFOPS 1.98 1.99 0.4% 2.33 2.41 3.5% 2.93 2.87 -1.9%
a
Except per share data. Sources: Iguatemi and Santander estimates.
In our opinion, the greenfield projects are likely to enhance Iguatemi’s average rent per square
meter due to their premium characteristics (high-end malls in top locations), which should be a
tailwind for profitability gains. We estimate an average rent of R$86/m2 for 2012E, an increment
of 23% from current levels.

Figure 78. Iguatemi – Monthly Rental Revenue and Avg. Rent per m2, 2009-2012E
500 100
450 86 90
400 74 78 80
69 356
R$ Millions 350 70
300 281 60
R$
250 219 50
200 183 40
150 30
100 20
50 10
- 0
2009 2010E 2011E 2012E
Taking into account all the expected investments, we estimate that Iguatemi’s net debt should
peak at R$996 million in 2013, representing a net debt/EBITDA ratio of 2.6x in the same period.
Figure 79. Iguatemi – Net-Debt Ratios

1,200 996 3.0x
2.5x
1,000 834
2.0x
800 1.5x
600 1.0x
387 0.5x
400
0.0x
200 -0.5x
0 -1.0x
-23 -1.5x
-200
25 -2.0x
-400 -302 -2.5x
2009 2010E 2011E 2012E 2013E 2014E

VALUATION
Our YE2011 price target of R$41.00 (or US$19.50) per share was derived from a free cash flow
to firm analysis, using a WACC of 11.8% in reais (9.8% in U.S. dollars) and a nominal terminal
growth of 4.5%. We also ran a free cash flow to equity and an economic profit analysis and
arrived at the same result.

Figure 80. Iguatemi – Discounted Free Cash Flow Valuation (Reais in Millions1), 2010E-2017E
2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E
Noplat 109 145 189 257 321 370 395 419
Depreciation 35 44 52 69 80 78 77 76
Gross Cash Flow 145 189 240 326 401 448 472 495
Δ in Working Capital 0 (0) 0 1 (3) (4) (2) (2)
Capex (358) (153) (495) (756) (27) (30) (32) (34)
Other Net Assets (8) (21) (10) (35) (21) (11) (8) (8)
FCFF (222) 16 (264) (464) 350 403 429 452

(-) Net Debt 179 Implied P/BV 2011E 2.1x
1
RISKS
• Profitability deterioration. Excessive shopping center industry growth could result in
profitability reduction.
• Downturn in retail sales. This could lead to an unexpected increase in vacancy rates and/or
a downside in rental prices.
• Longer-than-expected ramp up in new greenfield projects. This could negatively affect
the company’s profitability.
improve companies’ ROE, lack of funding could change the industry’s level of returns, as
• Regional concentration. Increased competition in São Paulo’s mainstream market, which
concentrates nearly 70% of the company’s owned portfolio, could lead to reduction in
company’s rental prices.

Figure 81. Iguatemi – Income Statement, Balance Sheet, and CF Statement, 2009-2012E
(Millions of R$)
Net Sales 217.4 100.0% 255.3 100.0% 324.8 100.0% 407.9 100.0%
Cost of Sales (41.7) -19.2% (47.5) -18.6% (62.2) -19.1% (76.7) -18.8%
Gross Profit 175.7 80.8% 207.8 81.4% 262.6 80.9% 331.2 81.2%
S, G & A Expenses (55.9) -25.7% (69.2) -27.1% (81.0) -24.9% (95.3) -23.4%
Net Financial Expenses (8.2) -3.8% 16.5 6.5% 2.6 0.8% (16.0) -3.9%
Other Income (Expenses) (0.2) -0.1% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Equity Income (0.0) 0.0% (0.0) 0.0% (0.0) 0.0% (0.0) 0.0%
Net Profit 86.4 39.8% 122.4 47.9% 147.4 45.4% 175.9 43.1%
D, D &A (31.6) -14.5% (35.5) -13.9% (43.7) -13.4% (51.6) -12.6%
EBITDA 151.5 69.7% 174.0 68.2% 225.3 69.4% 287.5 70.5%
FFO 118.3 54.4% 157.9 61.8% 191.0 58.8% 227.5 55.8%
Assets 1,964.9 100.0% 1,713.2 100.0% 1,874.3 100.0% 2,351.8 100.0%
Current Assets 683.1 34.8% 91.2 5.3% 101.2 5.4% 115.4 4.9%
Inventories 0.7 0.0% 1.0 0.1% 1.3 0.1% 1.5 0.1%
Long-Term Assets 85.0 4.3% 102.3 6.0% 144.4 7.7% 164.6 7.0%
Net P, P &E 1,096.7 55.8% 1,419.3 82.8% 1,528.2 81.5% 1,971.3 83.8%
Investments 0.6 0.0% 0.7 0.0% 0.7 0.0% 0.7 0.0%
Liabilities 584.4 29.7% 258.8 15.1% 346.2 18.5% 735.7 31.3%
Short-Term Debt 15.1 0.8% 0.0 0.0% 1.5 0.1% 19.6 0.8%
Long-Term Debt 309.6 15.8% 0.0 0.0% 27.8 1.5% 372.4 15.8%
Cash Flow 2009 2010E 2011E 2012E
Cash Earnings 118.3 157.9 191.0 227.5
Chg. In Working Capital (16.4) (35.5) 9.7 21.1
Cash Flow from Financing 378.5 (358.0) (45.8) 256.6
Net Cash Flow 374.1 (603.6) (18.2) 0.6
Beginning Cash 252.2 626.3 22.7 4.5
Ending Cash 626.3 22.7 4.5 5.1

Figure 82. Iguatemi – Income Statement, Balance Sheet, and CF Statement, 2009-2012E (U.S.
Net Sales 108.8 100.0% 139.5 100.0% 160.4 100.0% 192.8 100.0%
Cost of Sales (20.9) -19.2% (25.9) -18.6% (30.7) -19.1% (36.3) -18.8%
Gross Profit 88.0 80.8% 113.5 81.4% 129.7 80.9% 156.5 81.2%
S, G & A Expenses (28.0) -25.7% (37.8) -27.1% (40.0) -24.9% (45.0) -23.4%
Net Financial Expenses (4.1) -3.8% 9.0 6.5% 1.3 0.8% (7.5) -3.9%
Equity Income (0.0) 0.0% (0.0) 0.0% (0.0) 0.0% (0.0) 0.0%
Net Profit 43.3 39.8% 66.9 47.9% 72.8 45.4% 83.1 43.1%
D, D &A (15.8) -14.5% (19.4) -13.9% (21.6) -13.4% (24.4) -12.6%
EBITDA 75.8 69.7% 95.1 68.2% 111.3 69.4% 135.9 70.5%
FFO 59.2 54.4% 86.2 61.8% 94.3 58.8% 107.5 55.8%
Assets 1,128.7 100.0% 878.6 100.0% 892.5 100.0% 1,104.1 100.0%
Current Assets 392.4 34.8% 46.8 5.3% 48.2 5.4% 54.2 4.9%
Inventories 0.4 0.0% 0.5 0.1% 0.6 0.1% 0.7 0.1%
Long-Term Assets 48.8 4.3% 52.4 6.0% 68.8 7.7% 77.3 7.0%
Net P, P &E 630.0 55.8% 727.8 82.8% 727.7 81.5% 925.5 83.8%
Investments 0.4 0.0% 0.3 0.0% 0.3 0.0% 0.3 0.0%
Liabilities 335.7 29.7% 132.7 15.1% 164.8 18.5% 345.4 31.3%
Short-Term Debt 8.7 0.8% 0.0 0.0% 0.7 0.1% 9.2 0.8%
Long-Term Debt 177.8 15.8% 0.0 0.0% 13.3 1.5% 174.9 15.8%
Liabilities and Sh. Equity 1,128.7 100.0% 878.6 100.0% 892.5 100.0% 1,104.1 100.0%
Cash Flow 2009 2010E 2011E 2012E
Cash Earnings 59.2 86.2 94.3 107.5
Cash Flow from Financing 189.5 (195.6) (22.6) 121.3
Net Cash Flow 233.5 (348.3) (9.6) 0.3
Beginning Cash 126.3 359.8 11.6 2.1
Ending Cash 359.8 11.6 2.1 2.4

NOTES

MULTIPLAN HOLD
A Premium Player Trading at a Premium Valuation
+5511 3012-7530 +5511 3012-7414 +5255 5269-1931
Investment Thesis: We are introducing our YE2011 target price of

(7/12/10) R$41.00 (or US$19.50) per share for Multiplan and maintaining our
CURRENT PRICE: R$32.89/US$18.63 Hold rating for the stock. (This replaces our YE2010 target price of
TARGET PRICE: R$41.00/US$19.50 R$36.00/US$20.00). Below, we present a summary of our main views
What’s Changed on the name:
Rating Maintained at Hold • The company’s valuation premium is justified, in our view . . .
Price Target (R$) Introducing YE11: 41.00 We believe Multiplan’s strong execution (it has one of the highest
EBITDA Estimates (US$ Mn) '10 to 211.3 from 201.4
NOI/m2 of the industry, low vacancy rate, etc.) financial discipline
'11 to 209 from 205.4
and well-qualified management, places the company a notch above
'12 to 257.6 from 246.3
its competitors, and thus explains the current premium valuation.
Currently, the stock is trading at 17.1 times and 15.4 times P/FFO
Company Statistics
for 2011E and 2012E, or at a premium of 9% and 22%,
Bloomberg MULT3.BZ
52-Week Range (US$)
respectively, to the shopping center industry average.
9.57-19.69
2011E P/E Rel to the Ibovespa (x) 2.12 • . . . but lower corporate efficiency is a headwind for
2011E P/FFO Rel to Real Estate (x) 1.21 consolidated profitability. Part of Multiplan’s above-average
profitability is based on its superior portfolio but is offset by higher-
than-average corporate expenses, as according to our calculation,
Market Capitalization (US$ Mn) 3,311
Float (%) 36.9%
Multiplan ranks first in terms of SG&A as a percentage of NOI at
52-Week Avg Daily Vol (US$000) 6,063 19%, above the sector average of 13%.
Shares Outst - Mn 177.70
• Pre-operational expenses should put margins under pressure.
Net Debt/Equity (x) -0.1
9.12
Expenses related to projects that are under development used to be
Book Value per Share (US$)
capitalized in the past, but after the migration to IFRS, these
Estimates and Valuation Ratios expenses will be booked as they occur. As a result, the company’s
reported margin should remain under pressure during organic
2009A 2010E 2011E 2012E
Net Earn (R$ Mn) 171.4 252.8 287.8 316.0
growth periods.
Current EPS 1.06 1.42 1.62 1.78 • Diversifying towards the commercial real estate segment. In
Net Earn (US$ Mn) 85.8 138.1 142.1 149.3 April 2010, Multiplan launched the Morumbi Business Center, an
Current EPS 0.53 0.78 0.80 0.84
A-class office building adjacent to the Morumbi Shopping Mall. We
P/E (x) 31.1 23.1 20.3 18.5
13.4 9.9 10.1 8.2
believe the benefits of this move are twofold as: (1) it exposes
P/Sales (x)
P/FFO (x) 25.4 19.5 17.1 15.4
Multiplan to the growing commercial segment and its bright
EV/EBITDA (x) 16.0 14.1 14.1 11.0 outlook; and (2) it increases the customer flow to Morumbi
EV/Sales (x) 10.3 8.9 9.0 7.0 Shopping, which should have a positive impact on sales and,
FCF Yield (%) -7.6 2.8 -7.4 0.3 consequently, on rentals.
Div per Share (US$) NM 0.29 0.40 0.44
Div Yield (%) NM 0.9 1.2 1.4 Valuation and Risks: Our YE2011 target price was derived from a free
NM not meaningful. Sources: Bloomberg, Company Reports, and cash flow to firm analysis, using a WACC of 11.1% in reais (9.1% in
U.S. dollars) and a nominal terminal growth rate of 4.5%. We also ran a
free cash flow to equity and an economic profit analysis, and we arrived
at the same result using all three methodologies. Risks include: (1)
profitability deterioration; (2) a downturn in retail sales; and (3) lack of
funding for the real estate sector.

Multiplan Empreendimentos Imobiliários S/A is one of the leading developers, owners and operators of shopping
centers in Brazil. As of 1Q10, the company held interest in 13 malls, with their own GLA of 347,900 m2, boasting an
average stake of 65% in its mall portfolio. The company is listed at the Level II of Bovespa and presents a free float
of.36.9%.
INVESTMENT THESIS
A PRIME SHOPPING CENTER DEVELOPER
One of Multiplan’s biggest differentials is the higher-than-average revenue per square meter that
it manages to collect, which in our opinion indicates the higher quality of its portfolio. On the
other hand, the company’s lower efficiency in terms of corporate expenses dissipates most of its
portfolio profitability. As shown in the chart below, Multiplan has the highest SG&A expenses
relative to gross revenue.
Figure 83. Multiplan – 2011E SG&A as Percentage of Gross Revenue

20% 18.7%
16.7%
15% 14.3%
13.1%
10.7%
10.1%
10%
5%
0%
BR Properties BRMalls Iguatemi CCP São Carlos Multiplan
Sources: Company reports and Santander.
Multiplan is currently developing several organic growth projects that should add as much as
143,000 m² to its current portfolio by the end of 2012, representing a three-year GLA CAGR of
14%. We highlight, however, that Multiplan adopts a more conservative approach in terms of
disclosing its growth opportunities, and for this reason, we estimate that the company should
grow in excess of the current guidance of GLA addition. Even considering stronger than already
announced growth prospects, it is also interesting to note that the implied combinations of growth
and margins on current market valuation are fairly close to our base-case scenario, thus,
justifying our Hold rating for the stock.

Figure 84. Multiplan – Implied Growth Analysis
20%
Santander Base Case

Growth 15%
10%
5%
48% 58% 68% 78% 88% 98%
EBIT Margin
Sources: Multiplan and Santander.
The stock is trading at a rich valuation compared with its peers, even considering its better-than-
average portfolio, at 17.1 times and 15.4 times P/FFO for 2011E and 2012E, or at a premium of
9% and 22%, respectively, to the shopping center industry average.
EARNINGS OUTLOOK
We have factored in the announcement of three greenfield projects in 4Q09 (Park Shopping São
Caetano, Jundiai Shopping and Village Mall, which should increase the company’s GLA by
99,960 m2, around 18% of the company’s GLA) and updated the delivery schedule of the
remaining projects. This, coupled with our estimate of higher average rental per m2 led to a top-
line increase of 3.5% in 2010E and 8.1% in 2012E.
Also, we revised downwards our EBITDA margin forecast for 2012 to around 64% as a result of
the recognition of pre-operational expenses (expenses related to projects that are under
development and thus not yet generating revenue) that could continue to hurt margins
Multiplan’s pipeline continues to grow. Acknowledging that the company’s leverage is likely to
increase and assuming a higher tax burden, we slashed our FFOPS estimates for the next three
years as shown below.
Figure 85. Multiplan - Estimates Revisions, 2010E–2012E (R$ in Millionsa)

2010E 2011E 2012E
YE Owned GLA 368.4 364.6 -1.0% 432.9 373.2 -13.8% 480.9 521.0 8.4%
Revenue 593.6 614.6 3.5% 659.3 664.8 0.8% 791.8 856.3 8.1%
EBITDA 368.5 386.8 5.0% 415.9 423.2 1.8% 521.2 545.2 4.6%
EBITDA Margin 62.1% 62.9% 0.9pp 63.1% 63.7% 0.6pp 65.8% 63.7% -2.2pp
Net Earnings 279.5 252.8 -9.5% 312.2 287.8 -7.8% 388.1 316.0 -18.6%
Net Margin 47.1% 41.1% -5.9pp 47.4% 43.3% -4.1pp 49.0% 36.9% -12.1pp
EPS 1.57 1.42 -9.5% 1.76 1.62 -7.8% 2.18 1.78 -18.6%
FFO 353.7 300.3 -15.1% 391.7 341.5 -12.8% 467.3 380.6 -18.6%
FFOPS 1.99 1.69 -15.1% 2.20 1.92 -12.8% 2.63 2.14 -18.6%
a
Except per share data. Sources: Multiplan and Santander estimates.

Based on the company’s pipeline, Multiplan’s GLA should reach 633 million m2 by the end of
2014 as shown below.
Figure 86. Multiplan - GLA Evolution, 2008-2014E (‘000 M2)

700
52
633
600
118
500 30
30
9
400 17
348
330 30
300
200
100
0
2008 2009 2010E 2011E 2012E 2013E 2014E
Sources: Multiplan and Santander estimates.

We also believe that the company should deliver an expansion in rental prices based on the
inflation readjustments from existing contracts, as well as through the implementation of some
real increases in renegotiations for expiring contracts.
Figure 87. Multiplan – Monthly Rental Revenue and Avg. Rent per M2, 2009-2012E (R$ Mn)
800 140
125
700 120
638
106
600 97
100
R$ Millions
87 494
500
433 80
366
R$
400
60
300
200 40
100 20
- 0
2009 2010E 2011E 2012E
Taking into account all the expected investments, we estimate that Multiplan’s net debt should
peak in 2014 at R$627 million, representing a net debt/EBITDA ratio of 0.7 times in the same
period.

Figure 88. Multiplan – Net-Debt Ratios
800 1.0x
627 0.8x
600 482
0.6x
400 167 0.4x
0.2x
200 0.0x
0 -0.2x
-0.4x
117
-200 -0.6x
-274 -0.8x
-400
-1.0x
-600 -385 -1.2x
2009 2010E 2011E 2012E 2013E 2014E

VALUATION
Our YE2011 target price of R$41.00 (or US$19.50) per share. This price target was derived from
a free cash flow to firm analysis, using a WACC of 11.1% in reais (9.1% in U.S. dollars) and a
nominal terminal growth of 4.5%. We also ran a free cash flow to equity and an economic profit
analysis, and we arrived at the same result using all three methodologies.
Figure 89. Multiplan – Discounted Free Cash Flow Valuation (Reais in Millions1), 2010E-2017E
2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E
Noplat 243 274 317 421 515 616 695 755
Depreciation 47 54 65 73 86 95 96 95
Gross Cash Flow 291 328 382 494 600 711 790 850
Δ in Working Capital 23 (1) (32) (22) (31) (23) (23) (18)
Capex (130) (760) (259) (628) (507) (269) (54) (58)
Other Net Assets (32) (10) (72) (50) (66) (49) (47) (31)
FCFF 151 (443) 20 (206) (4) 369 666 742

(-) Net Debt 356 Implied P/BV 2011E 2.2x
Implied P/FFO
(15)
(-) Minorities 2011E 21.3x
1
RISKS
• Profitability deterioration. Excessive shopping center industry growth could result in a
reduction in the company’s profitability.
• Downturn in retail sales. This could lead to unexpected increases in vacancy rates and/or a
downside in rental prices.
• Longer-than-expected ramp up in new greenfield projects. This could negatively affect
the company’s profitability.
improve companies’ ROE, lack of funding could change the industry’s level of returns, as
• Regional concentration. Increased competition in São Paulo’s mainstream market, where
nearly 41% of the company’s owned portfolio is concentrated could lead to a reduction on
company’s rental prices.
Figure 90. Multiplan – Income Statement, Balance Sheet, and CF Statement, 2009–2012E
(Millions of R$)
Net Sales 494.7 100.0% 614.6 100.0% 664.8 100.0% 856.3 100.0%
Cost of Sales (63.7) -12.9% (72.6) -11.8% (80.2) -12.1% (102.8) -12.0%
Gross Profit 431.0 87.1% 542.0 88.2% 584.6 87.9% 753.5 88.0%
S, G & A Expenses (152.4) -30.8% (202.7) -33.0% (215.1) -32.4% (272.9) -31.9%
Net Financial Expenses 1.6 0.3% 24.9 4.1% 20.3 3.1% (1.7) -0.2%
Financial Expenses (41.4) -8.4% (27.9) -4.5% 0.0 0.0% (3.9) -0.5%
Equity Income (20.0) -4.0% (6.7) -1.1% 0.0 0.0% 0.0 0.0%
Net Profit 171.4 34.7% 252.8 41.1% 287.8 43.3% 316.0 36.9%
D, D &A (39.1) -7.9% (47.5) -7.7% (53.7) -8.1% (64.6) -7.5%
EBITDA 317.7 64.2% 386.8 62.9% 423.2 63.7% 545.2 63.7%
FFO 211.1 42.7% 300.3 48.9% 341.5 51.4% 380.6 44.5%
Assets 3,670.9 100.0% 3,526.6 100.0% 3,901.0 100.0% 4,400.6 100.0%
Current Assets 1,085.2 29.6% 693.6 19.7% 336.9 8.6% 475.7 10.8%
Inventories 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Long-Term Assets 210.2 5.7% 376.6 10.7% 401.1 10.3% 567.5 12.9%
Net P, P &E 2,022.1 55.1% 2,104.2 59.7% 2,810.9 72.1% 3,005.2 68.3%
Investments 15.4 0.4% 14.4 0.4% 14.4 0.4% 14.4 0.3%
Liabilities 836.2 22.8% 471.1 13.4% 629.7 16.1% 892.2 20.3%
Short-Term Debt 196.4 5.3% 0.0 0.0% 6.2 0.2% 8.9 0.2%
Long-Term Debt 357.5 9.7% 0.0 0.0% 118.7 3.0% 169.9 3.9%
Shareholders’ Equity 2,822.6 76.9% 3,040.8 86.2% 3,256.7 83.5% 3,493.7 79.4%
Cash Flow 2009 2010E 2011E 2012E
Cash Earnings 211.1 300.3 341.5 380.6
Chg. In Working Capital 5.4 (191.1) 6.1 (18.9)
Cash Flow from Financing 947.7 (389.5) 46.7 (27.8)
Net Cash Flow 660.4 (443.3) (376.5) 3.5
Beginning Cash 167.6 828.0 384.7 8.2
Ending Cash 828.0 384.7 8.2 11.7

Figure 91. Multiplan – Income Statement, Balance Sheet, and CF Statement, 2009–2012E (U.S.
Net Sales 247.7 100.0% 335.8 100.0% 328.3 100.0% 404.6 100.0%
Cost of Sales (31.9) -12.9% (39.6) -11.8% (39.6) -12.1% (48.6) -12.0%
Gross Profit 215.8 87.1% 296.1 88.2% 288.7 87.9% 356.0 88.0%
S, G & A Expenses (76.3) -30.8% (110.7) -33.0% (106.2) -32.4% (129.0) -31.9%
Net Financial Expenses 0.8 0.3% 13.6 4.1% 10.0 3.1% (0.8) -0.2%
Financial Expenses (20.7) -8.4% (15.2) -4.5% 0.0 0.0% (1.8) -0.5%
Equity Income (10.0) -4.0% (3.7) -1.1% 0.0 0.0% 0.0 0.0%
Net Profit 85.8 34.7% 138.1 41.1% 142.1 43.3% 149.3 36.9%
D, D &A (19.6) -7.9% (25.9) -7.7% (26.5) -8.1% (30.5) -7.5%
EBITDA 159.1 64.2% 211.3 62.9% 209.0 63.7% 257.6 63.7%
FFO 105.7 42.7% 164.1 48.9% 168.7 51.4% 179.9 44.5%
Assets 2,108.8 100.0% 1,808.5 100.0% 1,857.6 100.0% 2,066.0 100.0%
Current Assets 623.4 29.6% 355.7 19.7% 160.4 8.6% 223.4 10.8%
Inventories 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Long-Term Assets 120.7 5.7% 193.1 10.7% 191.0 10.3% 266.4 12.9%
Net P, P &E 1,161.6 55.1% 1,079.1 59.7% 1,338.5 72.1% 1,410.9 68.3%
Investments 8.8 0.4% 7.4 0.4% 6.9 0.4% 6.8 0.3%
Liabilities 480.4 22.8% 241.6 13.4% 299.8 16.1% 418.9 20.3%
Short-Term Debt 112.8 5.3% 0.0 0.0% 3.0 0.2% 4.2 0.2%
Long-Term Debt 205.4 9.7% 0.0 0.0% 56.5 3.0% 79.8 3.9%
Cash Flow 2009 2010E 2011E 2012E
Cash Earnings 105.7 164.1 168.7 179.9
Cash Flow from Financing 474.5 (212.8) 23.1 (13.1)
Net Cash Flow 391.7 (278.4) (193.4) 1.5
Beginning Cash 83.9 475.6 197.3 3.9
Ending Cash 475.6 197.3 3.9 5.5

IMPORTANT DISCLOSURES
Key to Investment Codes
% of % of Companies Provided
Companies Investment Banking
Covered with This Services in the Past 12
Rating Definition Rating Months
Buy Expected to outperform the local market benchmark by more than 10%. 61.78% 55.26%
Hold Expected to perform within a range of 0% to 10% above the local market
31.94% 44.74%
benchmark.
Underperform/Sell Expected to underperform the local market benchmark. 6.28% --
Under review -- --
The numbers above reflect our Latin American universe as of Tuesday, July 13, 2010.
For a discussion, if applicable, of the valuation methods used to determine the price targets included in this report and the risks to achieving
these targets, please refer to the latest published research on these stocks. Research is available through your sales representative and other
electronic systems.
Target prices are 2010 year-end unless otherwise specified. Recommendations are based on a total return basis (expected share price
appreciation + prospective dividend yield) unless otherwise specified.
Stock price charts and rating histories for companies discussed in this report are also available by written request to Santander Investment
rd th
Securities Inc., 45 East 53 Street, 17 Floor (Attn: Research Disclosures), New York, NY 10022 USA.
Ratings are established when the firm sets a target price and/or when maintaining or reiterating the rating. Ratings may not coincide with the above
methodology due to price volatility. Management reserves the right to maintain or to modify ratings on any specific stock and will disclose this in the
report when it occurs. Valuation methodologies vary from stock to stock, analyst to analyst, and country to country. Any investment in Latin American
equities is, by its nature, risky. A full discussion of valuation methodology and risks related to achieving the target price of the subject security is included
in the body of this report.
The benchmark used for local market performance is the country risk of each country plus the 1-year U.S. Treasury yield plus 5.5% of equity risk
premium, unless otherwise specified. The benchmark plus the 10.0% differential used to determine the rating is time adjusted to make it comparable
with the total return of the stock over the same period. For additional information about our rating methodology, please call (212) 350 3974.
This research report (“report”) has been prepared by Santander Investment Securities Inc. ("SIS"; SIS is a subsidiary of Santander Investment I, S.A.
which is wholly owned by Banco Santander, S.A. ["Santander"]) on behalf of itself and its affiliates (collectively, Grupo Santander) and is provided for
information purposes only. This report must not be considered as an offer to sell or a solicitation of an offer to buy any relevant securities (i.e., securities
mentioned herein or of the same issuer and/or options, warrants, or rights with respect to or interests in any such securities). Any decision by the
recipient to buy or to sell should be based on publicly available information on the related security and, where appropriate, should take into account the
content of the related prospectus filed with and available from the entity governing the related market and the company issuing the security. This report
is issued in Spain by Santander Investment Bolsa, Sociedad de Valores, S.A. (“Santander Investment Bolsa”) and in the United Kingdom by Banco
Santander, S.A., London Branch. Santander London is authorized by the Bank of Spain. This report is not being issued to private customers. SIS,
Santander London and Santander Investment Bolsa are members of Grupo Santander.
The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed, that
their recommendations reflect solely and exclusively their personal opinions, and that such opinions were prepared in an independent and autonomous
manner, including as regards the institution to which they are linked, and that they have not received and will not receive direct or indirect compensation
in exchange for expressing specific recommendations or views in this report, since their compensation and the compensation system applying to Grupo
Santander and any of its affiliates is not pegged to the pricing of any of the securities issued by the companies evaluated in the report, or to the income
arising from the businesses and financial transactions carried out by Grupo Santander and any of its affiliates: Flavio Queiroz*, Fabiola Gama*, Gonzalo
Fernandez*.
*Employed by a non-US affiliate of Santander Investment Securities Inc. and not registered/qualified as a research analyst under FINRA rules, and is not
an associated person of the member firm, and, therefore, may not be subject to the FINRA Rule 2711 and Incorporated NYSE Rule 472 restrictions on
communications with a subject company, public appearances, and trading securities held by a research analyst account.
As per the requirements of the Brazilian CVM, the following analysts hereby certify that we do not maintain a relationship with any individual working for
the companies whose securities were evaluated in the disclosed report. That we do not own, directly or indirectly, securities issued by the company
evaluated. That we are not involved in the acquisition, disposal and intermediation of such securities on the market: Flavio Queiroz and Fabiola Gama.
Within the past 12 months, Grupo Santander has managed or co-managed a public offering of securities of BR Properties, BR Malls, and Iguatemi.
Within the past 12 months, Grupo Santander has received compensation for investment banking services from BR Properties, BR Malls, and Iguatemi.
Santander or its affiliates and the securities investment clubs, portfolios and funds managed by them have do not have any direct or indirect ownership
interest equal to or higher than one percent (1%) of the capital stock of any of the companies whose securities were evaluated in this report and are not
involved in the acquisition, disposal and intermediation of such securities on the market.
The information contained within this report has been compiled from sources believed to be reliable. Although all reasonable care has been taken to
ensure the information contained within these reports is not untrue or misleading, we make no representation that such information is accurate or
complete and it should not be relied upon as such. All opinions and estimates included within this report constitute our judgment as of the date of the
report and are subject to change without notice.
From time to time, Grupo Santander and/or any of its officers or directors may have a long or short position in, or otherwise be directly or indirectly
interested in, the securities, options, rights or warrants of companies mentioned herein.
Any U.S. recipient of this report (other than a registered broker-dealer or a bank acting in a broker-dealer capacity) that would like to effect any
transaction in any security discussed herein should contact and place orders in the United States with SIS, which, without in any way limiting the
foregoing, accepts responsibility (solely for purposes of and within the meaning of Rule 15a-6 under the U.S. Securities Exchange Act of 1934) for this
report and its dissemination in the United States.
© 2010 by Santander Investment Securities Inc. All Rights Reserved.
2010

Santander Brazil Income Properties July 2010

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Latin American Equity Research Sector Report

BRAZILIAN INCOME PROPERTIES JULY 2010

Important disclosures/certifications are in the “Important Disclosures” section of this report.

Recommendations, Target Prices, and FFOPS Estimates..........................................................3

Catalysts and Drivers .................................................................................................................4

Four Reasons to Be Bullish on the Brazilian Income Properties Industry .............................4

Shopping Center Industry Fundamentals...................................................................................8

Office Industry Fundamentals..................................................................................................12

Occupancy Outlook ..........................................................................................................15

Comparative Multiple Analysis ...............................................................................................17

São Carlos ................................................................................................................................35

2 Important disclosures/certifications are in the “Important Disclosures” section of this report.

Figure 1. Brazil—Select Economic Projections, 2008–2012E

Figure 2. Investment Thesis Summary

Important disclosures/certifications are in the “Important Disclosures” section of this report. 3

CATALYSTS AND DRIVERS

(1) OUTLOOK FOR RENTAL PRICE APPRECIATION

4 Important disclosures/certifications are in the “Important Disclosures” section of this report.

IGPM (% Chg YoY) SSR (% Chg YoY)

Sources: Santander. 1SSR stands for same-store rent.

(2) HIGH YIELDS WITH LOW OPERATING VOLATILITY

Aerospace Malls+Properties 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10

Important disclosures/certifications are in the “Important Disclosures” section of this report. 5

(3) EARLY STAGES OF INDUSTRY CONSOLIDATION

Sources: Santander and company releases.

(4) EXPECTED CAP-RATE COMPRESSION

6 Important disclosures/certifications are in the “Important Disclosures” section of this report.

WE PREFER OFFICE BUILDINGS OVER SHOPPING CENTERS

Important disclosures/certifications are in the “Important Disclosures” section of this report. 7

Shopping Center PPE/Revenue

0.2x 0.17x 1/ 13% 10%

SHOPPING CENTER INDUSTRY FUNDAMENTALS

8 Important disclosures/certifications are in the “Important Disclosures” section of this report.

PPP adjusted GDP per Capita - USD

Source: Abrasce estimates.

Important disclosures/certifications are in the “Important Disclosures” section of this report. 9

Figure 14. IRR Sensitivity Analysis for Greenfield Projects

50 9.2% 10.9% 12.7% 14.7% 17.0% 19.6% 22.6%

10 Important disclosures/certifications are in the “Important Disclosures” section of this report.

5 South +17% Consolidated Brazil

Sources: Abrasce and Santander.

Important disclosures/certifications are in the “Important Disclosures” section of this report. 11

OFFICE INDUSTRY FUNDAMENTALS

Office Inventory (m2 million)

New Inventory SP New Inventory RJ

Important disclosures/certifications are in the “Important Disclosures” section of this report. 13

Net Absorption SP Net Absorption RJ

% Absorption SP % Absorption RJ GDP Growth

14 Important disclosures/certifications are in the “Important Disclosures” section of this report.

Change in Vacancy Rate (%)

Supply Addition - Net Absorption Change in Vacancy (RHS)

Sources: CBRE and Santander estimates.

Important disclosures/certifications are in the “Important Disclosures” section of this report. 15

Figure 27. Office Vacancy Rate (%) in SP and RJ, 2004-2011E

Vacancy Rate SP Vacancy Rate RJ

Sources: CBRE and Santander estimates.

EQUITY INVESTORS SHOULD ALSO PAY CLOSE ATTENTION TO

Figure 28. SG&A as % of Revenue, 2011E

BR Malls and BR 16.7%

Sources: Company reports and Santander estimates.

16 Important disclosures/certifications are in the “Important Disclosures” section of this report.

COMPARATIVE MULTIPLE ANALYSIS

09-12E GLA CAGR (%)