Strategy and Competitive Advantages
BR Properties is guided by the following strategy:
Rapid portfolio expansion, accompanying growth in the market. The current macroeconomic environment in Brazil, with interest rates at historic lows, stable inflation, and other favorable economic indicators, is positively reflected in the increased demand for commercial properties in Brazil, mainly in metropolitan areas. Accordingly, BR Properties believes that current Brazilian economic conditions present a unique opportunity for expanding its activities. The Company intends to take advantage of the favorable environment to rapidly augment its portfolio of properties, benefiting from increasing market demand, through active management focused on increasing revenue from rent derived from Company’s rental properties and from sales of appreciated properties. BR Properties believes that a significant portion of its future growth will come from its ability to acquire new properties or property companies and broaden its participation in the most attractive regions of Brazil. Notwithstanding Company’s aggressive growth, BR Properties has not compromised on performing comprehensive and intensive diligence before closing acquisitions, relying on external legal, technical, and engineering consultants and environmental, financial and tax evaluations, as the situation requires. The Company engages independent legal advisors in all of its property acquisitions.
Portfolio diversification, with a focus on creating value. BR Properties’ portfolio of properties is diversified in terms of location, user profile and type of property, which the Company believes mitigates its operating and financial risks. BR Properties intends to continue to diversify its portfolio as the Company expands and acquire or develop properties with characteristics compatible with its goals for profitability. BR Properties understands that, outside the metropolitan areas of São Paulo and Rio de Janeiro, there are other areas in Brazil with high commercial property demand, where the Company intends to expand its activities. BR Properties may purchase or develop all or parts of various kinds of properties in a variety of locations, with single or multiple tenants. The criteria for acquiring or developing properties are predominantly based on adding value for Company’s shareholders through investments that permit an adequate return. BR Properties believes that this flexibility gives the Company an important advantage over its competitors, facilitating rapid, robust and sustainable growth.
Appreciation in the assets value through active management and a focus on generating value. BR Properties seeks to identify opportunities for modernizing and updating the technology at its properties, through the implementation of more efficient and economical operating systems and equipment, such as building supervision and automation systems for managing and metering energy use, including smart elevators and air conditioning systems that save energy, among others, in order to increase the value of the properties in its portfolio and generate value for Company’s shareholders. BR Properties believes that its accumulated experience in analyzing commercial developments, together with the knowledge and understanding of the Brazilian real estate market, and of its tenants and their business needs, set the Company apart and allow effective implementation of those investments. In addition, the Company’s active management focuses on reducing joint-ownership (condominium) administrative costs, and exploring other sources of income, such as parking and publicity. Reducing the condominium fees per square meter of gross leasable space is important, to the extent that it makes it possible to increase the amount of rent BR Properties earns and its revenue, without increasing the total cost to its tenants. Active management also allows the Company to recognize when a property has peaked in value, and, as such, helps accurately time sales to maximize property values. Besides improving the infrastructure of a property, the Company seeks to maintain active relationships with all its tenants, in order to identify opportunities for expansion and possible reallocations, maintaining low rates of financial vacancy and increasing its potential revenue from existing clients.
Maintaining standards of excellence in management. BR Properties intends to maintain its current high standard of excellence in operational, financial and personnel management, by reinforcing its merit-based policy and performance-based remuneration, and systematically monitoring its performance indicators. The Company will continue to focus on attracting, retaining, and incentivizing its managers and employees, aligning their interests to those of Company’s shareholders through stock option programs.
Maintaining financial discipline and responsible growth. The Company intends to continue to structure its financing such that it avoids the need to raise funds for working capital. Accordingly, BR Properties will continue to seek to enter into long-terms and low-cost financing linked to properties with existing leases such that rental revenue is sufficient to cover debt service payments. The Company will also continue to seek financing arrangements that allows it to generate a financial spread between rental revenue and the cost of financing the property acquired. Accordingly, BR Properties may also refinance certain debt facilities to reduce debt service costs and also use any excess proceeds of such refinancing to make new acquisitions. The Company also intends to use its own capital to finance acquisitions, and to modernize and update the technology at its properties. The Company will undertake such acquisitions in consideration of its projected cash flow, so as not to compromise its liquidity. BR Properties also intends to optimize its capital structure to generate the maximum value for its shareholders, while limiting costs and financial risks to a suitable level.
BR Properties’ competitive strengths include:
Unique business model with leadership position and consolidation in the industry. BR Properties has adopted a comprehensive and integrated business model, guided by a unique capacity to acquire assets. The Company believes this gives an important advantage over its competitors, driving its leadership and consolidation in the sector. BR Properties has internal teams dedicated to all phases of its activities, including an investment team which consists of chief executive officer and five specialists focused on seeking out, analyzing and acquiring new properties and investments. This team enables the Company to identify and evaluate opportunities in the main real estate markets in Brazil. BR Properties has an extensive network of contacts, and a solid reputation among owners of property and land, brokers and financing agents. As a result, the Company does not depend exclusively on brokers to identify investment opportunities, giving an important competitive advantage in assuming a leadership position in the sector and in the consolidation process.
Extensive and diversified management experience. BR Properties executives have over 20 years of experience in the Brazilian real estate sector, particularly in the commercial property segment, and are qualified and recognized in the areas of finance and business administration. The Company believes that the combination of the complementary experiences of its executives, forming a team of professionals capable of efficiently identifying opportunities relating to acquisitions, financial structuring and management and sale of commercial properties, is fundamental to the success of its business. The diverse accumulated experience of Company’s management team, together with their entrepreneurial, innovative and results oriented vision, allow BR Properties to take advantage of the best business opportunities to generate value for its shareholders.
Structured financing capacity. BR Properties seeks to structure its acquisitions so that acquired properties are self-financed with the debt service payments, including interest and principal, fully covered by lease revenues. The Company seeks financing arrangements that allow generating a positive financial spread between the lease revenue received and the cost of financing to acquire the property. The most of Company‘s indebtedness was long-term with an average maturity of 4.7 years. (On September 30, 2014)
Portfolio of high quality properties, with diversified occupancy, strategically located in areas with significant potential for appreciation. The commercial properties in BR Properties’ portfolio are diversified in terms of (i) occupancy, with tenants from a variety of sectors in the Brazilian economy, such as financial institutions, large domestic and multinational industrial groups, and communications, manufacturing, distribution and logistics services; (ii) use with office space, industrial warehouses and retail stores; (iii) area, with commercial spaces, entire floors, and single- and multi-use buildings; and (iv) geographic location, in the states of São Paulo, Rio de Janeiro, Paraná and Minas Gerais, where the Company has rental buildings situated in areas that are easy to access with good logistic infrastructure. A large number of BR Properties’ buildings have efficient structures and systems that provide comfort, safety and cost savings to its tenants, all of which contribute to reduced rates of financial vacancy in Company’s properties. As a result of the quality of its properties, BR Properties has been able to attract corporate tenants from a variety of economic segments, which is reflected in its tenants‘ low default rates. Company’s rental contracts have expirations distributed across the short, medium and long terms, contributing to lower operational and financial risks and, at the same time, permitting periodic adjustment of certain leases to market parameters. All Company’s leases have a clause for annual adjustments in accordance with inflation indices such as IGP-M, IGP-DI, and IPCA or INPC rates.
Implementation of sustainability policies. BR Properties is committed to fitting its properties with equipment and infrastructure that conserve energy and water, reduce waste and minimize environmental impacts. The Company continuously monitors the quality of effluents and soil contamination at certain of its industrial properties. BR Properties has adopted processes for segregated collection of different kinds of waste at a substantial number of its properties. Additionally, the Company is a founding member in Brazil of the Green Building Council and three of its employees are certified by this institution. BR Properties will seek to attain the Leadership in Energy and Environmental Design, or LEED, Gold and Silver certification in all its developments. The Company believes that there is an increasing demand in Brazil for properties that comply with high environmental sustainability standards which, together with the limited availability of these properties, represents a high potential for an increase in the market value of its properties.