Gafisa Institutional Presentation
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Corporate Presentation for Gafisa provides an overview of the company's competitive advantages and operating performance. Key points include: 1) Gafisa has multifaceted residential products across all income segments in Brazil and a national footprint that allows it to capture demand growth. 2) The company has a proven track record of execution, delivering strong growth in launches, sales, and revenues in recent years while maintaining profitability. 3) Gafisa benefits from strong brand recognition, solid reputation, and leading market positions that support its operating results.
Gafisa Institutional Presentation
- 2. Disclaimer We make forward-looking statements that are subject to risks and uncertainties. These Statements are based on the beliefs and assumptions of our management, and on information currently available to us. Forward-looking statements include statements regarding our intent, belief or current expectations or that of our directors or executive officers. Forward-looking statements also include information concerning our possible or assumed future results of operations, as well as statements preceded by, followed by, or that include the words ''believes,'' ''may,'' ''will,'' ''continues,'' ''expects,'„ ''anticipates,'' ''intends,'' ''plans,'' ''estimates'' or similar expressions. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur. Our future results and shareholder values may differ materially from those expressed in or suggested by these forward-looking statements. Many of the factors that will determine these results and values are beyond our ability to control or predict. 2
- 3. Gafisa‟s Differentiation Industry Leading Liquidity and Corporate Governance Multifaceted Residential Products in All Income Segments National Footprint Proven Track Record of Execution Strong Brand Recognition and Solid Reputation 3
- 4. Shareholder Structure, Corporate Governance and Liquidity True corporation listed on the NYSE and the most liquid Brazilian Real Estate company GFSA3 Majority Independent Board of Directors; 100% Senior management with an average of over 20 years of experience and interests aligned with shareholders through Stock Option Plan; 80% 100% Permanent Fiscal Council, Audit, Compensation, Finance and Governance committees 100% free float; Avg. Daily Trading Volume (R$ mm) - Last 90 days1 100% tag along rights; 110 84 100% common shares (“Novo Mercado”); 72 Full compliance with Sarbanes-Oxley; 36 36 Only Brazilian real estate company listed on the 16 NYSE. PDG Cyrela Rossi MRV Brookfield 1. Source: Bloomberg as of August 2nd, 2010 4
- 5. Solid Track Record of Value Creation Strong growth, value-creating transactions with a successful history in the capital markets 1 3,921 3,022 Net revenue (R$ mm) New Follow-on: Net Primary 1,740 proceeds of R$1.02 billion 1,204 664 R$600 mm 457 in FI-FGTS debentures (May/09) Acquisition of Follow-on: a 60% stake R$488 mm of primary R$600 mm Increase in IPO: proceeds stake from in FI-FGTS R$494 mm 60% to 80% debentures of primary (Dec/09) proceeds Equity International First Brazilian investment company in the sector to be listed in Acquisition the NYSE Acquisition of Foundation of a 60% the remaining stake 40% 1954 - 2004 2005 2006 2007 2008 2009 2010 1. Source: Consensus Bloomberg as of August 6th, 2010 5
- 7. Multifaceted Residential Products in All Income Segments Focused on the residential market, with 3 leading brands strategically positioned in all income segments Segment / Income Mid and Upper-Mid Mid and Upper-Mid Affordable Entry-Level Price Unit price: > R$200 thousand Unit price: R$70 – R$500 Unit price: R$50 – R$200 thousand Contribution Sales 1H10 48% 14% 38% Presence 44 cities in 14 states 55 cities in 22 states 91 cities in 14 states Completed Projects 17 projects/phases in 2009 5 projects/phases in 2009 130 projects/phases in 2009 Characteristics Vertical Horizontal lot development Horizontal / Vertical Metropolitan areas Suburban areas Metropolitan areas and surroundings Custom projects Custom projects Standardized products 7
- 8. Strong Demand Growth in All Segments Strong potential demand of around R$170 billion per year, being 58% in the mid and upper mid income segment and 42% in the affordable entry-level segment Number of Families (mm) New Families Income Bracket Gafisa Potential Demand per Year per Year (Monthly) Brands (R$ bn) 2007 2030 (thousand) Above R$ 32,000 0 0.3 13 Mid and Upper-Mid New Families R$ 16,000 - R$ 32,000 0.3 1.3 530 Income 43 (thousands) Potential Demand 101 R$ 8,000 - R$ 16,000 1.1 4.3 139 (R$ bn)1 R$ 4,000 - R$ 8,000 3.3 11.0 335 New Families R$ 2,000 - R$ 4,000 8.4 21.8 583 (thousands) 846 Entry-Level Affordable Potential Demand 72 (R$ bn)2 R$ 1,000 - R$ 2,000 15.5 27.6 526 Up to R$ 1,000 31.7 29.1 (113) 1,526 TOTAL 60.3 95.4 1,526 Source: “O Brasil Sustentável”, FGV and Ernst & Young, 2007 Notes: Gafisa: Positioned to capture growth in all 1. Assumes an average ticket of R$190,000 2. Assumes an average ticket of R$85,000 income segments demand 8
- 9. National Footprint National footprint captures both rapidly growing and large metropolitan regions Geographic Footprint Landbank Distribution vs. GDP Distribution Landbank 2Q10 GDP Distribution - 2006 South South 7% 16% Midwest São Paulo São Paulo 12% 34% Midwest 34% 9% Northeast Northeast 19% 13% North Rio de Janeiro North Rio de Janeiro 5% 14% 5% 12% Other Southeast Others Southeast 9% 11% R$ 15.8 Billion Real GDP Growth 1 8.0% 6.6% 6.9% Brand States2 Cities Legend 4.7% 14 44 3.1% 14 91 22 55 Consolidated 23 129 South Midw est Southeast Northeast North Source: Company and IBGE Note: 1. Nominal GDP growth rate per year for 2003 – 2006 adjusted by the average consumer price index (IPCA) of the period 2. Including Brasilia Federal District . 9
- 10. Strategically Located Land Bank Gafisa has a strategic land bank that allows for continued project launches Land bank distribution 1H10 Land bank PSV (R$ million) Potential Future number of Swap Company sales units % 15,823 1,656 15,768 R$ billion (% Gafisa) 1.6x 4,285 (1,712) 3,972 18.4 7.5 41.3 10,195 29.2 4.3 96.8 1,536 3,962 4,298 4.7x 2,930 42.9 4.0 31.4 7,576 7,497 5,729 Total 90.5 15.8 39.3% 2,167 IPO 2006 2007 2009 1H10 Net Actual 1H10 Launches Acquisitions Gafisa Alphaville Tenda *Note: Tenda 2007 represents Fit + Bairro Novo 10
- 11. Proven Track Record of Execution Units Under Construction Projects under Construction 49,423 49,876 188 195 33,586 85 16,099 63 2007 2008 2009 2Q10 2007 2008 2009 1H10 Units Completed Number of Engineers 971 E: 20,000 880 367 674 309 10,831 241 58 61 459 8,206 47 186 31 513 543 3,108 7,497 386 242 2007 2008 2009 1H10/2010E 2007 2008 2009 1H10 Intern Enginners Construction Architects On the Job 11 Source: Gafisa
- 12. Strong Brand Recognition and Solid Reputation Gafisa benefits from its strong brand recognition and solid reputation through: (i) a higher sales speed (VSO); (ii) commanding premium prices; and (iii) easier access to asset swaps / partnerships Leading Brands Strong Brands in Every Segment Maior Construtora do Brasil: Largest Construction 1st Company in Brazil – 2008 / 2009 (ITCnet) ► 55 years in the Real Estate industry ► Completed more than 985 developments and 11 million m 2 ► Awards: Valor Top Management and Top Manager of the Year Top of Mind – 2008 (Diário do Grande ABC / 1st IBOPE) ► One of the best known brands in the affordable entry-level segment ► Completed more than 500 developments 1st Reference in Urban Development ► Completed more than 40 developments and 3.4 million m 2 ► Awards: Best Social Responsibility and 2009 Top Social – Alphaville Foundation Source: ITCnet, Revista Marketing, Valor Econômico 12
- 13. SECTION 2 Operating and Financial Performance 13
- 14. Launches, Contracted Sales and Revenues High growth rates over the last years ... Launches (R$mm) Pre-Sales (R$mm) Net Revenues (R$mm) 1 4,000 to 5,000 4,196 3,248 3,022 1,970 2,578 988 2,301 1,361 2,236 300 313 932 1,835 617 1,740 277 1,712 1,747 237 1,627 377 276 580 60 420 587 300 670 1,204 250 238 7 193 170 1,005 995 1,913 325 245 664 1,757 1,698 1,510 1,265 1,329 1,345 1,215 1,085 1,005 995 1,004 800 832 664 2006 2007 2008 2009 1H10 2006 2007 2008 2009 1H10 2006 2007 2008 2009 1H10 Note: 1 2010E guidance range announced by the Company 14
- 15. EBITDA, Net Income and Results to be Recognized … aligned with sustained growth in profitability Adjusted EBITDA1 (R$ mm) and Net Income (R$ mm) and Results to be Recognized (Backlog4) Margin (%) Margin 2 (%) (R$ mm) and Margin (%) 18.5% to 37.5% 20.5% 3 36.4% 17.5% 10.6% 35.1% 35.2% 34.6% 9.9% 15.0% 14.9% 9.6% 1,167 604 13.4% 75 214 1,066 1,015 8.1% 6.9% 162 19.2% 300 110 41 528 530 92 352 298 259 46 180 89 2006 2007 2008 2009 1H10 2006 2007 2008 2009 1H10 2006 2007 2008 2009 1H10 Lucro Líquido (R$ mm) Margem (%) REF (R$ mm) Margem (%) EBITDA (R$ mm) Margem (%) Notes: Tenda‟s goodwill net of provisions 1 Adjusted for stock options and excluding Tenda‟s goodwill net of provisions 2 Net income before minority interests and non-recurring expenses 3 2010E guidance range announced by the Company 4 Gross Profit 15
- 16. Solid Balance Sheet 1H10 Leverage (R$ mm) Debt Composition (R$ mm) and Rates SFH / Net Debt / Project 1,708 8.2% - 11.5% (TR) 45.2% Finance Shareholders‟ Equity Working Capital 678 CDI + (0.7% – 4.2%) Debentures 663 CDI + (1.5 – 3.3%) Investor 380 CDI Obligations 1,806 Total 3,429 10.6% Debt Maturity Schedule 1 (%) 3,429 949 713 1,623 63% 631 606 26% 80% 99% 74% 150 37% 20% 100% Total Debt Cash Net Debt 2011 2012 2013 2014 From 2015 Note: Project Finance (R$ mm) Corporate Debt (R$ mm) 1 Does not include investors obligations of R$380 mm 16
- 17. Trading Multiples Liquidation Value (R$mn) Blue Chips (2Q10) Emerging Companie Company Gafisa Peer1 Peer2 Peer3 Peer4 Avg(1) Receivables from Sold Units 7,643 9,936 11,296 5,574 4,737 (-) Taxes (516) (671) (762) (376) (320) (-) Obligations from Sold Units (2,042) (3,009) (3,755) (1,591) (1,697) Mkt Value of Units for Sale 2,726 3,633 1,869 1,648 2,052 (-) Taxes (184) (245) (126) (111) (139) (-) Construction Obligations (636) (653) (229) (436) (898) Book Value of Land 702 2,038 2,455 1,108 668 (-) Swaps booked in Advances (104) (521) (1,874) (413) (71) (-) Payables from land acqs. (304) (407) (348) (229) (382) Other Assets 92 287 3 39 10 (-) Other liabilities (228) - - - - Cash and Equivalents 1,806 1,120 997 982 1,466 (-) Corporate Debt (1,721) (1,953) (1,192) (1,023) (1,061) (-) SFH and other Project Finance (1,708) (1,757) (1,578) (409) (1,085) (-) Minority Shareholders (79) (114) (345) (189) - (+) Invest. in Subsidiaries 195 144 13 - 2 Liquidation Value 5,641 7,828 6,424 4,574 3,282 BV Adjusted 4,652 7,524 5,811 3,902 2,982 BV 3,638 5,843 4,205 2,702 2,465 Deferred Income 1,068 1,708 1,712 1,261 517 Deferred Revenues 3,209 5,059 5,642 3,058 2,374 Deferred Costs and Expenses (2,042) (3,009) (3,755) (1,591) (1,697) Taxes (over Sales and Income) (99) (341) (175) (206) (160) Avg Stake 95% 98% 94% 95% 100% P/LV 0.95 1.34 1.55 1.58 1.32 1.45 P/BVAdj 1.15 1.39 1.71 1.86 1.45 1.60 P/BV 1.47 1.79 2.37 2.68 1.76 2.15 Market Cap 5,352 10,459 9,966 7,241 4,335 # of shares 437 571 426 490 269 Closing price (August 17th) 12.2 18.3 23.4 14.8 16.1 *Source: Barclays Capital Research and Companies' Information / (1) Excluding Gafisa 17
- 18. Gafisa‟s Differentiation Industry Leading Liquidity and Corporate Governance Multifaceted Residential Products in All Income Segments National Footprint Proven Track Record of Execution Strong Brand Recognition and Solid Reputation 18
- 19. APPENDIX A Tenda and Alphaville
- 20. Tenda: Differentiated Platform for the Affordable Entry- Level Segment Through Tenda, Gafisa has a differentiated and developed platform to capture growth in the affordable entry-level segment Innovative Building Technology: Higher Sales Standardized Construction Process ROE and Lower Cash Requirement Centrally located and well diversified Standard portfolio Month 1 - 6 Month 7 - 19 Month 20 Duo Tower Super 6 S Garden Life 1 2-4 6 ► Hybrid construction model with in-house Launch Construction Delivery ► Well-trained and dedicated sales force and outsourced construction capabilities helps clients with home purchasing and financing decisions Down Payment Requirements ► Standardized materials ► Sales force located in areas with constant Down During Financed Payment Construct. flow of people ► 4 project options in each production line Super 6 6% - 94% ► High variety of products and branch Standard 3% 17% 80% locations to best meet client needs ► Economies of Scale 20
- 21. Aluminium Mold Construction Technology Tenda: Valle Verde Cotia, SP ► Construction cycle reduced from 12 to 4 months; ► Standardized projects; ► Less labor intensive; ► Less exposure to inflationary pressure during construction period. 21
- 22. Alphaville: Differentiated Business for Residential Land Communities Alphaville Concept Steady Growth Leisure Residential Area Launches (R$ mm) Area 420 312 325 Residential Area 237 111 2006 2007 2008 2009 1H10 Alphaville Commercial Area Club Commercial Residential Area Multi-family Area Pre-Sales (R$ mm) and VSO (%) Areas 59% Sustainable Business Model 59% 377 41% 60% ► Partnership contracts via land swaps 300 n.a. 238 245 ► Construction only after pre-sales ► High sales velocity 140 ► Alphaville Foundation enables sustainable integration with the surrounding communities 2006 2007 2008 2009 1H10 22
- 23. APPENDIX B Real Estate Market Overview
- 24. Growing Credit Availability In recent years, the credit supply for real estate financing has increased substantially with lower interest rates and longer tenors Interest Rates vs. Housing Financing A favorable growth trend for credit availability began in 35% 120 2005, when the annual Selic was close to 20%; 30% 100 25% 80 In 2008 the Central Bank increased the Selic from 20% 60 11.25% to 13.75% without any impact on home financing; 15% 40 10% 5% 20 According to the Central Bank, the market is expecting 0% 0 a Selic of 11.00% by the end of 2010. Dec-02 Apr-04 Sep-05 Feb-07 Apr-08 Apr-09 Mar-10 Selic (%a.a.) Real Estate Financing (R$ billion) Real Estate Financing – Amount Funded (R$ bn) Housing Financing vs. GDP1 75 101% 83% 24 50 40 16 25 10 15 7 51 18% 10 34 13% 6 6 30 3% 4 18 3 3 6 9 2004 2005 2006 2007 2008 2009 2010E Denmark UK Chile Mexico Brazil SBPE FGTS Source: Central Bank, IBGE and ABECIP Brazil: high growth potential for home financing 1. Data from 2006. For Brazil, consider data from 2009 24
- 25. Government Programs – MCMV I Government programs were created to reduce the significant housing deficit in the lower income segments Highlights Simulation of Potential Impact on Market Size ► Financing for one million houses with up to Average Unit Price: “Minha Casa, Minha Before R$23,000 in subsidies to families with income of R$80k Vida” Program up to 10x the monthly minimum wage (R$4,650) Subsidy 0 16,000 ► R$34 billion in subsidies (Federal Government, Mortgage 80,000 64,000 FGTS, BNDES) Cost (TR+) 7% 5% ► Financing of homes with a price range of Monthly installments 665 394 R$80,000 to R$130,000 Minimum monthly income 2,661 1,969 ► Interest Rates ranging from TR+5% – TR+8% Equivalent of minimum wages 6.4 4.2 ► Homebuilders can finance 100% of the property value Market Size (millions of homes) 13.4 23.4 ► No down payment and no installments during the construction period (for families with income up to 3x the minimum wage) Additional market of approx. 10 million houses Source: Market Reports 25
- 26. Government Programs – MCMV II Government renewed MCMV program, giving more visibility to the Real Estate sector: Highlights Income distribution ► MCMV II income distribution followed the same distribution of the contracted units from MCMV I: ► Financing for two million houses up to 2014; ► R$72 billion in subsidies; # of units: 1 million 330,191 2 million ► Continued growth for the next 3 years already 11% 10% 20% committed; 30% 29% 40% ► General details to come up to 90 days after the announcement; 60% 60% 40% ► It confirms the government commitment to provide financing for entry level homebuyers. MCMV I - target MCMV I - up to March MCMV II - target 1st/2010 0-3 MW 3-6 MW 6-10 MW Source: CS, UBS, CEF, Market reports 26
- 27. Efficiency Gains under “MCMV” Program Tenda contracted 15,129 units through April and has close to 17,000 units under CEF analysis Contracted Units in the "MCMV" I Minimum Wages Caixa Econômica Fereral(1) 0 - 3 MW 250,333 3- 10 MW 251,167 TOTAL 501,500 (1) Until June 23 rd , 2010 for CEF . Breakdown between 0-3 and 3-10 based on the % from April 13th. Pipeline Period To be contracted(2) Contracted % MCMV TOTAL 2009 - 6,102 74% 6,102 1Q10 - 2,788 88% 2,788 2Q10 17,411 6,239 78% 23,650 TOTAL 17,411 15,129 78% 32,540 (2) Units being contracted in 2010 and already filed with CEF untill Jun 2010. Transferred Period Units % MCMV 2009 5,114 48% 1Q10 1,898 81% 2Q10 2,515 89% TOTAL 9,527 65% 27
- 28. CEF Real Estate Financing Caixa Econômica Federal has reached historical records of real estate financing, and is responsible for 73% of the market contracts Housing Financing Contracts (R$ bn) CEF vs. Market – Financing of New Units („000 units) 897 143 503 503 515 47 312 425 443 267 276 326 223 226 251 31 167 92 23 132 47 118 13 15 9 29 38 187 226 5 6 55 177 176 145 88 94 39 17 2003 2004 2005 2006 2007 2008 2009 Up to 2003 2004 2005 2006 2007 2008 2009 23-Jun June 10 Financing (R$ bn) Financing Amount ('000) Caixa - Others Caixa - MCMV Market 2010 Contracts: Units („000) and Projects Inventory of Received Proposals („000 units) Projects 3,966 Projects 738 3,149 397 814 255 240 2,815 145 2,325 656 140 188 1,868 576 114 193 17 1,402 478 104 42 364 149 885 91 137 96 495 256 78 120 60 10 262 135 147 66 95 481 130 33 37 334 394 27 8 75 69 267 22 7 39 191 8 53 26 44 121 8 12 30 4 26 64 2Q09 3Q09 4Q09 1Q10 Apr-10 abr/09 mai/09 jun/09 jul/09 ago/09 set/09 out/09 nov/09 dez/09 abr/10 0 a 3 SM 3 a 6 SM 6 a 10 SM Total 0 a 3 SM 3 a 6 SM 6 a 10 SM Total Source: Caixa Econômica Federal 28
- 29. APPENDIX C Operating and Financial Highlights 29
- 30. Main Financial and Operational Highlights 2Q10 vs. 1H10 vs. Operating and Financial Highlights (R$ 000) 2Q10 2Q09 1H10 1H09 2Q09 (%) 1H09 (%) Launches 1,008,528 626,282 61% 1,711,738 786,525 118% Launches, units - '000 4,398 2,568 71% 8,281 3,219 157% Contracted sales 889,761 835,443 6.5% 1,747,082 1,394,008 25.3% Contracted sales, units - '000 4,476 5,894 -24% 9,729 9,995 -3% Completed Projects 631,216 263,926 139% 957,118 670,426 43% Completed Projects, units - '000 4,782 3,784 26% 7,497 6,431 17% Net revenues 927,442 705,818 31% 1,835,027 1,247,705 47% Gross profit 279,492 191,353 46% 532,148 345,992 54% Adjusted Gross margin (w/o capitalized interest) 32.8% 30.1% 271 bps 31.6% 30.9% 75 bps Adjusted EBITDA (1) 183,970 111,319 65% 352,429 187,963 87% (1) Adjusted EBITDA margin 19.8% 15.8% 406 bps 19.2% 15.1% 414 bps (2) Adjusted Net profit 114,113 81,127 41% 193,737 138,182 40% Adjusted Net margin (2) 12.3% 11.5% 81 bps 10.6% 11.1% -52 bps Net profit 97,269 57,768 68% 162,087 94,501 72% EPS (R$/share) 0.23 0.22 2% 0.38 0.36 4% Number of shares ('000 final) 429,348 260,676 65% 429,348 260,676 65% Revenues to be recognized 3,209 3,092 4% 3,209 3,092 4% REF margin (3) 36.4% 36.4% 0 bps 36.4% 36.4% 0 bps Net debt and Investor obligations 1,622,787 1,486,441 9% 1,622,787 1,486,441 9% Cash and availabilities 1,806,384 1,056,312 71% 1,806,384 1,056,312 71% (Net debt + Obligations) / (Equity + Minorities) 45.2% 65.6% -2046 bps 45.2% 65.6% -2046 bps (1) Adjusted for expenses w ith stock options plans (non-cash) and Tenda goodw ill net of provisions. (2) Adjusted for expenses w ith stock options plans (non-cash), minority shareholders and non recurring expenses (3) Results to be recognized net from PIS/Cofins - 3.65%; excludes the AVP method introduced by law 11638 30