The Shopping Centre Handbook 3 - Deloitte

The Shopping CentreHandbook 3.0Investment & Financing KeysSpain 2017EXECUTIVE SUMMARY22 November 2017Financial Advisory I Real Estate@ 2017 Deloite Financial Advisory1 of 14

The Shopping Centre HandbookSpain 2017EXECUTIVE SUMMARY2 Physical Obsolescence & Repositioning: 43% ofSpanish Shopping Centres are in need of repositioning orobsolete. Commercial Density in Spain is at 341 sqm/1000 inhab.(2017YTD) with 9 recent openings in 2016-17.Supply &Demand1 10 out of the 31 new projects until 2020 areexpected to be feasible (353,900smq out of1,790,006sqm). We have identified clear changes in the characteristics ofSpanish Shopping Centres from the 70s to the currentdecade, as on average:i. Grocery Stores are -70% smaller (sqm).ii. Leisure area has increased by 70%.iii. There are less sqm of cinema, however, there aremore screens.Rents, Sales and Effort rates areexperiencing a positive trend in prime AverageMarketOverviewConsolidation of the recovery in mostmacro-economic fundamentals2016-2017 GDP growth: 3.1% 2017E Unemployment rate decreased by -6.9%(CAGR) since 2013. Spanish exports growth: 2.5% Household mortgage effort rates: 31%2016 Slight decrease in Consumer ConfidenceIndex due to Catalonia uncertainty: 107.4Dec-15 vs 99.6 Oct-2017 Footfall & Sales Growth: 1.7% y-o-yaverage footfall growth and 2.5% sales@ 2017Deloite Financialincreasein theAdvisory2016-17 period.shopping centres.3 Investment &Financing MarketEMEAregion concentrates 20% of the total Retail Investmentvolume (shopping centres high street). There has been achange in interest from investors from the EMEA region to theAmericas. Spain represents 16% of this amount. In Spain, Shopping Centres Investment volume ( 2,296m2017YTD) represents 30% of total non-residentialinvestment. The current pipeline may increase the totalinvestment volume to 2,950m by the end of the year. SpanishREITs (SOCIMIs) represented a 16% of the total investment. Shopping Centre Transaction Pipelineamounts to more than 3,042mfor 2017-2018 During this year traditional banks have started tocommercial land plots for developments.finance54Key Drivers &Trends in Spain The polarization of the category ofassets is going to continue to be atrend. Core opportunities will still berelevant in 2017 and value-addedopportunities will also play a major role. Despite the increasing interest forhealthy food, Fast Food stillconcentrates 64% of total restaurantsupply and has average sales 5%higher. Huge room for omnichannelstrategy growth in all retail assetclasses, but specially in Retail Parks.The Future ofShopping CentresThe Phygital World plays anessential role in the Shopping CentreIndustry: Communicating with the client has changedand must be done in a digital way as 56%of in-store sales are influenced by digitalmedia. Omnichannel Strategies are playing anincreasingly important role, with new featuressuch as SC e-commerce. Average condition of Spanish shoppingcentres requires an investment of approx. 1.1bn to refurbish and reposition them. Theaverage date of construction is 2001, froma sample of 435 retail schemes.2 of 14

Retail Market:Capital Values analysisEXECUTIVE SUMMARY10 Year BondNov 2016 – Nov 2017(6th November 2017)1.25%0.73%0.34%0.34%0.34%0.34%0.58% 8 bps 18 bps0.46%1.49% 22 bps 17 bps0.58%1.78% 7 bps 119 bps75 bps202 bps291 bps316 bps341 bps291 bps292 bps294 bps224 bps267 bps172 bps.220 bps 25 bpsDif. 10 years bond– Yield 2017 2Q 26 bps 18 bps 18 bps 18 bps 18 bps2,05%0%4,80048 2.9%10.8%3,30033 8.6%2.7%28 2,80012.3%18 Frankfurt6%Yields Evolution (%)2016 2Q – 2017 YTDBetween 2016 and 2017 Europe haskept the global yieldcompression trend which startedin 2014, producing importantincreases in Capital Values,apart from the effect that could havehad @othermarket factors such as the2017 Deloite Financial Advisoryrent evolution.0%23 2,300Hamburg43.1% 7.1% 1.3%10.8%08%In addition to the generalised Yieldcompressions, expectations of rentalincreases in some countries will lead to asignificant growth of capital values.38 3,800MunichCross Border investment volumes mayhave slowed down over the last yearbut they remain 41% above the 10year average.9.1%ParisAn increasing number of investorsare looking to properties as astable investment, especially intimes of widespread uncertainty.43 4,300London123Capital Values Growth (%)2016 2Q – 2017 2QDrivers of the cross-border investment:Despite all unanswered questionsregarding political direction in manycountries, markets are stillresponding in a rational manner.Capital Value pereach 1 of rentThe Shopping Centre HandbookSpain 20174%2%0%Min. 2007Max. 200920162017 YTDSource: Deloitte, Bloomberg3 of 14

European Investment MarketXanadú (Spain) with 520m of Investment Volumewas the largest transaction of 2017YTD in Europe.The Shopping Centre HandbookSpain 2017EXECUTIVE SUMMARY16% of the Total RetailInvestment 520mof the analysed countriesPolandIrelandSpain16%Irel and1%Russia France4%3%Bel gium1%Netherlands3%Source: DeloitteXanadúShopping Centre@ 2017 Deloite Financial Advisory 233m 244m NuevaCondominaLe gCentreBUYERUnion InvestmentBUYERKlepierreBUYERUnion InvestmentVENDORCredit Suisse AMVENDORBNP Paribas FortisVENDORCredit Suisse AMVENDORIntu PropertiesVENDORIvanhoe Cambridge36,424 sqm110,000 sqm35,499 sqm76,847 sqm153,695 sqmItalyPol a nd0%Sweden8% 220mBelgiumGermany34%United Kingdom25%Swi tzerland2%Norway2%Ital painSpainUnited KingdomGermanySource: DeloitteBUYERTH Real EstateBUYERIntu Properties4 of 14

Spanish Investment MarketThe Shopping Centre HandbookSpain 20172017 it is not expected to reach the transactionalvolume achieved in 2016, investment volume isunlikely to reach 10 billions by the end of the year.EXECUTIVE SUMMARYTop 10 Spanish deals:#12.398PRICE( m )ASSET1 Xanadú2 Xanadú (50%)3 Nueva C ondomina4 H2O Rivas (70% stake)5 Área Sur6 Alcalá Magna7 Parque Principado - RP8 ABC Serrano9 El Tormes10 La Marina52026423317511010082807270GLA (sqm eading .600Leading Sec.35.599Secondary@ 2017 Deloite Financial AdvisoryShortTerm 3.042mMedium Long Term TOTALTerm930Offices8.0008.5876747.774932Retail Shopping 652010201120121.467-2%2.702Retail High StreetTotal Shopping Centre investment volumein Spain as at 2017YTD: 2,296mA total pipeline investment volume of 3,042mis expected to be transacted in 5Source: Deloitte35%Total ( m)Source: 1420152.296867201370%6171.2632.297Remaining CREtypologies2016ShoppingCentres30%2017YTD-39%5 of 14

2017 Final Investment VolumeThe Shopping Centre HandbookSpain 2017Despite the relevant investment activity it is unlikely toreach the 2016 total investment volume.EXECUTIVE SUMMARY2017 CRE InvestmentBreakdownLogistic5%Retail HighStreet8% 370mOFFMARKET 380m PIPELINEL’Aljub / Berceo / UrbilHotels33%Offices24%3,7692016Retail Shopping Centre30%PIPELINENOV-DECSource: DeloitteTOTAL INVESTMENT JAN-OCT0Despite of the lack of “superprime” transactions, secondaryassets have played a majorrole in Spain.@ 2017 Deloite Financial Advisory 3,046m2,2962017Total investmentvolume expectedin 2017500Investment 201610001500Investment 4000Others / OffmarketSource: Deloitte6 of 14

Financing MarketThe Shopping Centre HandbookSpain 2017Senior Debt – Yielding AssetsLower costs with lower LTV at the Sponsor’s requirementEXECUTIVE SUMMARY2013MAIN DRIVERS FOR THE INCREASINGLENDING APPETITE Fundamentals improvementREAL ESTATE INVESTMENT MARKET Excess of Liquidity: Increase of thetransactional activity Arrival of new sponsors Alternative to the fixed income / bond yieldsMAIN LENDING CONCERNS Risks of 2018 pipeline: lack of “superprime” yielding assets Evolution of the interest rate in themedium termLending strategy for 2018 Refinancing of mortgage loansexpiring at 2018 (increasing LTVs) Assuming riskier collaterals(secondary assets, developments,@ 2017 Deloite Financial Advisoryetc.)Main ConditionsMACROECONOMIC ENVIRONMENTFrameworkMainPlayers20142015Credit AccessConstraintsInstitutional Investors/ Debt Funds20162017 YTDFinancingUpturnBanking / AssuranceCompanies 150-275pbs120-225pbs150-200bps 0%LTVBalloon40%-50%At the Sponsor’srequirement75%-100%(1) Sustainable LTV to face the debt service with high funding costs (A bigger LTV will mean a bigger debt service)(2) Balloon need to cover the high funding costs during the loan s life. (an smaller balloon will mean a bigger annual debt service)Source: Deloitte7 of 14

A more defensive tax environmentThe Shopping Centre HandbookSpain 2017BEPS are making an impact on tax structuring strategiesEXECUTIVE SUMMARYTop 10 Spanish deals:#PRICE( m )ASSET1 Xanadú2 Xanadú (50%)3 Nueva C ondomina4 H2O Rivas (70% stake)5 Área Sur6 Alcalá Magna7 Parque Principado - RP8 ABC Serrano9 El Tormes10 La Marina52026423317511010082807270GLA (sqm Leading .600Leading Sec.35.599SecondarySource: DeloitteTotal Shopping Centre investment volumein Spain as at 2017YTD: 2,296mA total pipeline investment volume of 3,042mis expected to be transacted in Spain35%63%@ 2017 Deloite Financial AdvisoryShortTerm2% 3.042mMedium Long Term TOTALTerm1234Withholding taxesReinforced substance atplatforms as to facilitate dividendWHT. Back-to-back borrowing tobe avoidedFunding structureMore conservative funding structures withSHLs duly supported by complete TPdocumentationBusiness rationaleOngoing monitoring and support of tax benefitsbeing proportionate to business reasons derivingfrom the structureSubstance concentrationSimplification of holding structures as a way toconcentrate substance. Creation of investmentplatforms with qualified personnel and substance8 of 14

Rental MarketThe Shopping Centre HandbookSpain 2017October 2017 (base 100)Recovery of mostconsumption groupsduring 2013-2016EFFORTRATES105105FOOTFALLGrowth of3.1% in2017EGEOPOLITICALSITUATIONUncertainty dueto theCataloniansituationUNEMPLOYMENTRATEDecreasing by 6.9%(CAGR) since 2013EXPORTSGrowth of 2.5%(2015 – 2016)As sales experimentsignificant increases, retailersimprove their businessperformance, with thesubsequent decrease on@ 2017 DeloiteFinancial AdvisoryeffortratesINDEX BASIS 100 (2014)GROWTHAverage Rents trendRecovery withpositive yearlyvariationsHousehold E.R. X BASIS 100 (2014)CONSUMERCONFIDENCEINDEX 99.6 pointsAverage RentsSecondary S.C.Average RentsPrime S.C.Average Rents trendEXECUTIVE SUMMARYChanges in grocery shopping customer preferences arebeing reflected on rents. Hypermarket rents are decreasingwhile supermarket rents are increasing in the last years.941009995Source: DeloitteSERVICESRESTAURANTSFASHION &ACCESSORIESSUPERMARKETHYPERMARKETFor more information see CHAPTER 2 (Supply & Demand) with the full rental market analysis based on Deloitte Database.Analysis sample size: 4,498 units (only 2016-2017YTD information)9 of 14

The Shopping Centre HandbookSpain 2017Main Players 2017-2018:EquityEXECUTIVE SUMMARYINVESTOR PROFILE IS CHANGING:20162017YTDOpportunistic 1%Opportunistic 5%ValueAdded11%ValueAdded15%Core 20%Core 11%Core68% m mCore2.555Debt – Traditional lendersCore69%Core1.615Core 776Core 268Value Added405Value Added353Opportunistic33Opportunistic105Source: DeloitteDebt – Alternative lendersMost active playersduring 2017YTD that areexpected to keep active:@ 2017 Deloite Financial Advisory10 of 14

The Shopping Centre HandbookSpain 2017Phygital World: what to expect?EXECUTIVE SUMMARYOnlineVS.OfflineSource: DeloitteShopping Centres are not justPHYSICAL places, they are becoming aunified PHYGITAL ECOSYSTEM inwhich online aspects are becoming@ 2017 Deloite FinancialAdvisoryincreasinglyimportant.11 of 14