UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-11690
DDR Corp.
(Exact Name of Registrant as Specified in Its Charter)
Ohio | 34-1723097 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
3300 Enterprise Parkway, Beachwood, Ohio 44122
(Address of Principal Executive Offices Zip Code)
(216) 755-5500
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
Name of Each Exchange on Which Registered | |
Common Shares, Par Value $0.10 Per Share | New York Stock Exchange | |
Depositary Shares, each representing 1/20 of a share of 6.5% Class J Cumulative Redeemable Preferred Shares without Par Value | New York Stock Exchange | |
Depositary Shares, each representing 1/20 of a share of 6.25% Class K Cumulative Redeemable Preferred Shares without Par Value | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2014, was $5.3 billion.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date.
360,847,935 common shares outstanding as of February 17, 2015
DOCUMENTS INCORPORATED BY REFERENCE
The registrant incorporates by reference in Part III hereof portions of its definitive Proxy Statement for its 2015 Annual Meeting of Shareholders.
EXPLANATORY NOTE
DDR Corp., an Ohio corporation (the Company), is filing this Amendment No. 1 on Form 10-K/A (this Amendment) to its Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which was originally filed on February 26, 2015 (the Original Filing), to amend Item 15 to include the separate financial statements of DDRM Properties LLC and Sonae Sierra Brazil BV SARL, as required under Rule 3-09 of Regulation S-X.
Other than as set forth herein, this Amendment does not affect any other parts of or exhibits to the Original Filing, and those unaffected parts or exhibits are not included in this Amendment. This Amendment continues to speak as of the date of the Original Filing and the Company has not updated the disclosure contained herein to reflect events that have occurred since the filing date of the Original Filing. Accordingly, this Amendment should be read in conjunction with the Companys other filings made with the Securities and Exchange Commission since the filing date of the Original Filing, including amendments to those filings, if any.
1
Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
a) | 1. Financial Statements |
The following documents were filed as a part of the Original Filing:
Report of Independent Registered Public Accounting Firm.
Consolidated Balance Sheets at December 31, 2014 and 2013.
Consolidated Statements of Operations for the three years ended December 31, 2014.
Consolidated Statements of Comprehensive Income (Loss) for the three years ended December 31, 2014.
Consolidated Statements of Equity for the three years ended December 31, 2014.
Consolidated Statements of Cash Flows for the three years ended December 31, 2014.
Notes to the Consolidated Financial Statements.
2. | Financial Statement Schedules |
The following financial statement schedules were filed as part of the Original Filing and should be read in conjunction with the consolidated financial statements of the registrant:
Schedule
II Valuation and Qualifying Accounts and Reserves for the three years ended December 31, 2014.
III Real Estate and Accumulated Depreciation at December 31, 2014.
IV Mortgage Loans on Real Estate at December 31, 2014.
Schedules not listed above have been omitted because they are not applicable or because the information required to be set forth therein is included in the consolidated financial statements or notes thereto.
b) | Exhibits The following exhibits are filed as part of, or incorporated by reference into, this report: |
Exhibit No. Reg. S-K Item 601 |
Form 10-K Exhibit No. |
Description |
Filed Herewith or Incorporated Herein by Reference | |||
2 | 2.1 | Agreement of Purchase and Sale between the Parties listed on Schedule A attached thereto, as REIT Seller, BRE Pentagon Retail Holding B, LLC, as Homart Seller, JDN Real Estate Lakeland, L.P., as REIT Buyer, and the Company, as Homart Buyer, dated as of May 15, 2013** | Quarterly Report on Form 10-Q (Filed with the SEC on August 8, 2013; File No. 001-11690) | |||
2 | 2.2 | Share Purchase Agreement, dated as of April 28, 2014, among Alexander Otto, AROSA Vermögensverwaltungsgesellschaft m.b.H. and CURA Beteiligungsgesellschaft Brasilien m.b.H., and DDR Luxembourg, S.à r.l. and DDR Luxembourg II, S.à r.l.** | Current Report on Form 8-K (Filed with the SEC on May 1, 2014; File No. 001-11690) | |||
3 | 3.1 | Third Amended and Restated Articles of Incorporation of the Company | Current Report on Form 8-K (Filed with the SEC on September 13, 2013; File No. 001-11690) | |||
3 | 3.2 | Amended and Restated Code of Regulations of the Company | Current Report on Form 8-K (Filed with the SEC on September 13, 2013; File No. 001-11690) | |||
4 | 4.1 | Specimen Certificate for Common Shares | Annual Report on Form 10-K (Filed with the SEC on February 28, 2012; File No. 001-11690) | |||
4 | 4.2 | Specimen Certificate for 7 3/8% Class H Cumulative Redeemable Preferred Shares | Annual Report on Form 10-K (Filed with the SEC on February 26, 2010; File No. 001-11690) | |||
4 | 4.3 | Deposit Agreement, dated as of October 26, 2009, by and between the Company and Mellon Investor Services LLC Relating to Depositary Shares Representing 7 3/8% Class H Cumulative Redeemable Preferred Shares (including Specimen Certificate for Depositary Shares) | Annual Report on Form 10-K (Filed with the SEC on February 26, 2010; File No. 001-11690) | |||
4 | 4.4 | Specimen Certificate for 6.50% Class J Cumulative Redeemable Preferred Shares | Registration Statement on Form 8-A (Filed with the SEC August 1, 2012; File No. 001-11690) | |||
4 | 4.5 | Deposit Agreement, dated as of August 1, 2012, among the Company and Computershare Shareowner Services LLC, as Depositary, and all holders from time to time of depositary shares relating to the Depositary Shares Representing 6.50% Class J Cumulative Redeemable Preferred Shares (including Specimen Certificate for Depositary Shares) | Current Report on Form 8-K (Filed with the SEC on August 1, 2012; File No. 001-11690) |
Exhibit No. Reg. S-K Item 601 |
Form 10-K Exhibit No. |
Description |
Filed Herewith or Incorporated Herein by Reference | |||
4 | 4.6 | Specimen Certificate for 6.250% Class K Cumulative Redeemable Preferred Shares | Registration Statement on Form 8-A (Filed with the SEC April 8, 2013; File No. 001-11690) | |||
4 | 4.7 | Deposit Agreement, dated as of April 9, 2013, among the Company and Computershare Shareowner Services LLC, as Depositary, and all holders from time to time of depositary shares relating to the Depositary Shares Representing 6.250% Class K Cumulative Redeemable Preferred Shares (including Specimen Certificate for Depositary Shares) | Current Report on Form 8-K (Filed with the SEC on April 9, 2013; File No. 001-11690) | |||
4 | 4.8 | Indenture, dated as of May 1, 1994, by and between the Company and The Bank of New York (as successor to JP Morgan Chase Bank, N.A., successor to Chemical Bank), as Trustee | Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003) | |||
4 | 4.9 | Indenture, dated as of May 1, 1994, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (as successor to National City Bank)), as Trustee | Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003) | |||
4 | 4.10 | First Supplemental Indenture, dated as of May 10, 1995, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003) | |||
4 | 4.11 | Second Supplemental Indenture, dated as of July 18, 2003, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003) | |||
4 | 4.12 | Third Supplemental Indenture, dated as of January 23, 2004, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Form S-4 Registration No. 333-117034 (Filed with the SEC on June 30, 2004) | |||
4 | 4.13 | Fourth Supplemental Indenture, dated as of April 22, 2004, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Form S-4 Registration No. 333-117034 (Filed with the SEC on June 30, 2004) | |||
4 | 4.14 | Fifth Supplemental Indenture, dated as of April 28, 2005, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Annual Report on Form 10-K (Filed with the SEC on February 21, 2007; File No. 001-11690) |
Exhibit No. Reg. S-K Item 601 |
Form 10-K Exhibit No. |
Description |
Filed Herewith or Incorporated Herein by Reference | |||
4 | 4.15 | Sixth Supplemental Indenture, dated as of October 7, 2005, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Annual Report on Form 10-K (Filed with the SEC on February 21, 2007; File No. 001-11690) | |||
4 | 4.16 | Seventh Supplemental Indenture, dated as of August 28, 2006, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Current Report on Form 8-K (Filed with the SEC on September 1, 2006; File No. 001-11690) | |||
4 | 4.17 | Eighth Supplemental Indenture, dated as of March 13, 2007, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Current Report on Form 8-K (Filed with the SEC on March 16, 2007; File No. 001-11690) | |||
4 | 4.18 | Ninth Supplemental Indenture, dated as of September 30, 2009, by and between the Company and U.S. Bank National, Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Form S-3 Registration No. 333-162451 (Filed on October 13, 2009) | |||
4 | 4.19 | Tenth Supplemental Indenture, dated as of March 19, 2010, by and between the Company and U.S. Bank National, Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Quarterly Report on Form 10-Q (Filed with the SEC on May 7, 2010; File No. 001-11690) | |||
4 | 4.20 | Eleventh Supplemental Indenture, dated as of August 12, 2010, by and between the Company and U.S. Bank National, Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Quarterly Report on Form 10-Q (Filed with the SEC on November 11, 2010; File No. 001-11690) | |||
4 | 4.21 | Twelfth Supplemental Indenture, dated as of November 5, 2010, by and between the Company and U.S. Bank National, Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Annual Report on Form 10-K (Filed with the SEC on February 28, 2011; File No. 001-11690) | |||
4 | 4.22 | Thirteenth Supplemental Indenture, dated as of March 7, 2011, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Quarterly Report on Form 10-Q (Filed with the SEC on May 9, 2011; File No. 001-11690) | |||
4 | 4.23 | Fourteenth Supplemental Indenture, dated as of June 22, 2012, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Form S-3 Registration No. 333-184221 (Filed with the SEC on October 1, 2012) |
Exhibit No. Reg. S-K Item 601 |
Form 10-K Exhibit No. |
Description |
Filed Herewith or Incorporated Herein by Reference | |||
4 | 4.24 | Fifteenth Supplemental Indenture, dated as of November 27, 2012, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Annual Report on Form 10-K (Filed with the SEC on March 1, 2013; File No. 001-11690) | |||
4 | 4.25 | Sixteenth Supplemental Indenture, dated as of May 23, 2013, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Quarterly Report on Form 10-Q (Filed with the SEC on August 8, 2013; File No. 001-11690) | |||
4 | 4.26 | Seventeenth Supplemental Indenture, dated as of November 26, 2013, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee | Annual Report on Form 10-K (Filed with the SEC on February 27, 2014; File No. 001-11690) | |||
4 | 4.27 | Eighteenth Supplemental Indenture, dated as of January 22, 2015, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (as successor to National City Bank)) | Current Report on Form 8-K (Filed with the SEC on January 22, 2015; File No. 001-11690) | |||
4 | 4.28 | Form of Fixed Rate Senior Medium-Term Note | Annual Report on Form 10-K (Filed with the SEC on March 30, 2000; File No. 001-11690) | |||
4 | 4.29 | Form of Fixed Rate Subordinated Medium-Term Note | Annual Report on Form 10-K (Filed with the SEC on March 30, 2000; File No. 001-11690) | |||
4 | 4.30 | Form of Floating Rate Subordinated Medium-Term Note | Annual Report on Form 10-K (Filed with the SEC on March 30, 2000; File No. 001-11690) | |||
4 | 4.31 | Eighth Amended and Restated Credit Agreement, dated as of October 20, 2010, by and among the Company, DDR PR Ventures LLC, S.E., the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent | Current Report on Form 8-K (Filed with the SEC on October 21, 2010; File No. 001-11690) | |||
4 | 4.32 | Amendment No. 1 to the Eighth Amended and Restated Credit Agreement, dated June 28, 2011, by and among the Company, DDR PR Ventures LLC, S.E., the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent | Current Report on Form 8-K (Filed with the SEC on July 1, 2011; File No. 001-11690) | |||
4 | 4.33 | Amendment No. 2 to the Eighth Amended and Restated Credit Agreement, dated January 17, 2013, by and among the Company, DDR PR Ventures LLC, S.E., the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent | Current Report on Form 8-K (Filed with the SEC on January 18, 2013; File No. 001-11690) |
Exhibit No. Reg. S-K Item 601 |
Form 10-K Exhibit No. |
Description |
Filed Herewith or Incorporated Herein by Reference | |||
4 | 4.34 | Second Amended and Restated Secured Term Loan Agreement, dated June 28, 2011, by and among the Company, DDR PR Ventures LLC, S.E., KeyBank National Association, as Administrative Agent, and the other several banks, financial institutions and other entities from time to time parties to such loan agreement | Current Report on 8-K (Filed with the SEC on July 1, 2011; File No. 001-11690) | |||
4 | 4.35 | First Amendment to the Second Amended and Restated Secured Term Loan Agreement, dated January 17, 2013, by and among the Company, DDR PR Ventures LLC, S.E., KeyBank National Association, as Administrative Agent, and the other several banks, financial institutions and other entities from time to time parties to such loan agreement | Current Report on Form 8-K (Filed with the SEC on January 18, 2013; File No. 001-11690) | |||
10 | 10.1 | Directors Deferred Compensation Plan (Amended and Restated as of November 8, 2000)* | Form S-8 Registration No. 333-147270 (Filed with the SEC on November 9, 2007) | |||
10 | 10.2 | DDR Corp. 2005 Directors Deferred Compensation Plan (January 1, 2012 Restatement)* | Annual Report on Form 10-K (Filed with the SEC on February 28, 2012; File No. 001-11690) | |||
10 | 10.3 | First Amendment to the DDR Corp. 2005 Directors Deferred Compensation Plan (effective November 30, 2012)* | Annual Report on Form 10-K (Filed with the SEC on March 1, 2013; File No. 001-11690) | |||
10 | 10.4 | Elective Deferred Compensation Plan (Amended and Restated as of January 1, 2004)* | Annual Report on Form 10-K (Filed with the SEC on March 15, 2004; File No. 001-11690) | |||
10 | 10.5 | Developers Diversified Realty Corporation Equity Deferred Compensation Plan, restated as of January 1, 2009* | Annual Report on Form 10-K (Filed with the SEC on February 27, 2009; File No. 001-11690) | |||
10 | 10.6 | Amended and Restated 2002 Developers Diversified Realty Corporation Equity-Based Award Plan (Amended and Restated as of December 31, 2009)* | Annual Report on Form 10-K (Filed with the SEC on February 26, 2010; File No. 001-11690) | |||
10 | 10.7 | Amended and Restated 2004 Developers Diversified Realty Corporation Equity-Based Award Plan (Amended and Restated as of December 31, 2009)* | Annual Report on Form 10-K (Filed with the SEC on February 26, 2010; File No. 001-11690) | |||
10 | 10.8 | Amended and Restated 2008 Developers Diversified Realty Corporation Equity-Based Award Plan (Amended and Restated as of June 25, 2009)* | Quarterly Report on Form 10-Q (Filed with the SEC August 7, 2009; File No. 001-11690) | |||
10 | 10.9 | 2012 Equity and Incentive Compensation Plan* | Form S-8 Registration No. 333-181422 (Filed with the SEC on May 15, 2012) |
Exhibit No. Reg. S-K Item 601 |
Form 10-K Exhibit No. |
Description |
Filed Herewith or Incorporated Herein by Reference | |||
10 | 10.10 | Form Restricted Shares Agreement* | Quarterly Report on Form 10-Q (Filed with the SEC August 7, 2009; File No. 001-11690) | |||
10 | 10.11 | Form Restricted Shares Agreement* | Quarterly Report on Form 10-Q (Filed with the SEC May 9, 2012; File No. 001-11690) | |||
10 | 10.12 | Form of Restricted Shares Agreement* | Quarterly Report on Form 10-Q (Filed with the SEC May 10, 2013; File No. 001-11690) | |||
10 | 10.13 | Form of Incentive Stock Option Grant Agreement for Executive Officers under the 2004 Developers Diversified Realty Corporation Equity-Based Award Plan* | Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006; File No. 001-11690) | |||
10 | 10.14 | Form of Incentive Stock Option Grant Agreement for Executive Officers (with accelerated vesting upon retirement) under the 2004 Developers Diversified Realty Corporation Equity-Based Award Plan* | Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006; File No. 001-11690) | |||
10 | 10.15 | Form of Non-Qualified Stock Option Grant Agreement for Executive Officers under the 2004 Developers Diversified Realty Corporation Equity-Based Award Plan* | Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006; File No. 001-11690) | |||
10 | 10.16 | Form of Non-Qualified Stock Option Grant Agreement for Executive Officers (with accelerated vesting upon retirement) under the 2004 Developers Diversified Realty Corporation Equity-Based Award Plan* | Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006; File No. 001-11690) | |||
10 | 10.17 | Form Stock Option Agreement for Incentive Stock Options Grants to Executive Officers* | Quarterly Report on Form 10-Q (Filed with the SEC August 7, 2009; File No. 001-11690) | |||
10 | 10.18 | Form Stock Option Agreement for Non-Qualified Stock Option Grants to Executive Officers* | Quarterly Report on Form 10-Q (Filed with the SEC August 7, 2009; File No. 001-11690) | |||
10 | 10.19 | Form Non-Qualified Stock Option Agreement* | Quarterly Report on Form 10-Q (Filed with the SEC May 9, 2012; File No. 001-11690) | |||
10 | 10.20 | Form Non-Qualified Stock Option Agreement* | Quarterly Report on Form 10-Q (Filed with the SEC May 10, 2013; File No. 001-11690) | |||
10 | 10.21 | Form of Incentive Stock Option Agreement* | Quarterly Report on Form 10-Q (Filed with the SEC May 9, 2012; File No. 001-11690) | |||
10 | 10.22 | Form of Incentive Stock Option Agreement* | Quarterly Report on Form 10-Q (Filed with the SEC May 10, 2013; File No. 001-11690) | |||
10 | 10.23 | Promotion Grant Agreement, dated January 1, 2010, by and between the Company and Daniel B. Hurwitz* | Quarterly Report on Form 10-Q (Filed with the SEC on May 7, 2010; File No. 001-11690) | |||
10 | 10.24 | Developers Diversified Realty Corporation Value Sharing Equity Program* | Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006; File No. 001-11690) |
Exhibit No. Reg. S-K Item 601 |
Form 10-K Exhibit No. |
Description |
Filed Herewith or Incorporated Herein by Reference | |||
10 | 10.25 | Form of Value Sharing Equity Program Award Shares Agreement* | Annual Report on Form 10-K (Filed with the SEC on March 1, 2013; File No. 001-11690) | |||
10 | 10.26 | 2013 Value Sharing Equity Program* | Annual Report on Form 10-K (Filed with the SEC on March 1, 2013; File No. 001-11690) | |||
10 | 10.27 | Form of 2013 Value Sharing Equity Program Award Agreement* | Quarterly Report on Form 10-Q (Filed with the SEC May 10, 2013; File No. 001-11690) | |||
10 | 10.28 | Amended and Restated Employment Agreement, dated July 29, 2009, by and between the Company and Daniel B. Hurwitz* | Quarterly Report on Form 10-Q (Filed with the SEC on November 6, 2009; File No. 001-11690) | |||
10 | 10.29 | First Amendment to the Amended and Restated Employment Agreement, dated December 31, 2012, by and between the Company and Daniel B. Hurwitz* | Current Report on Form 8-K (Filed with the SEC on January 2, 2013; File No. 001-11690) | |||
10 | 10.30 | Mutual Separation Agreement and Release, dated December 29, 2014 as amended December 31, 2014, between Daniel B. Hurwitz and DDR Corp.* | Annual Report on Form 10-K (Filed with the SEC on February 26, 2015; File No. 001-11690) | |||
10 | 10.31 | Employment Agreement, dated April 12, 2011, by and between the Company and David J. Oakes* | Quarterly Report on Form 10-Q (Filed with the SEC on November 8, 2011; File No. 001-11690) | |||
10 | 10.32 | First Amendment to the Employment Agreement, dated December 31, 2012, by and between the Company and David J. Oakes* | Current Report on Form 8-K (Filed with the SEC on January 2, 2013; File No. 001-11690) | |||
10 | 10.33 | Employment Agreement, dated April 12, 2011, by and between the Company and Paul W. Freddo* | Quarterly Report on Form 10-Q (Filed with the SEC on November 8, 2011; File No. 001-11690) | |||
10 | 10.34 | First Amendment to the Employment Agreement, dated December 31, 2012, by and between the Company and Paul W. Freddo* | Current Report on Form 8-K (Filed with the SEC on January 2, 2013; File No. 001-11690) | |||
10 | 10.35 | Employment Agreement, dated February 29, 2012, by and between the Company and Christa A. Vesy* | Quarterly Report on Form 10-Q (Filed with the SEC May 9, 2012; File No. 001-11690) | |||
10 | 10.36 | First Amendment to the Employment Agreement, dated February 27, 2013, by and between the Company and Christa A. Vesy* | Current Report on Form 8-K (Filed with the SEC on March 4, 2013; File No. 001-11690) | |||
10 | 10.37 | Second Amendment to the Employment Agreement, dated February 28, 2014, by and between DDR Corp. and Christa A. Vesy* | Quarterly Report on Form 10-Q (Filed with the SEC on May 9, 2014; File No. 001-11690) | |||
10 | 10.38 | Form of Change in Control Agreement, entered into with certain officers of the Company* | Annual Report on Form 10-K (Filed with the SEC on February 27, 2009; File No. 001-11690) | |||
10 | 10.39 | Form of Director and Officer Indemnification Agreement* | Quarterly Report on Form 10-Q (Filed with the SEC on November 8, 2011; File No. 001-11690) |
Exhibit No. Reg. S-K Item 601 |
Form 10-K Exhibit No. |
Description |
Filed Herewith or Incorporated Herein by Reference | |||
10 | 10.40 | Form of Medium-Term Note Distribution Agreement | Annual Report on Form 10-K (Filed with the SEC on March 30, 2000; File No. 001-11690) | |||
10 | 10.41 | Program Agreement for Retail Value Investment Program, dated February 11, 1998, by and among Retail Value Management, Ltd., the Company and The Prudential Insurance Company of America | Annual Report on Form 10-K (Filed with the SEC on March 15, 2004; File No. 001-11690) | |||
10 | 10.42 | Investors Rights Agreement, dated as of May 11, 2009, by and between the Company and Alexander Otto | Current Report on Form 8-K (Filed with the SEC on May 11, 2009; File No. 001-11690) | |||
10 | 10.43 | Waiver Agreement, dated as of May 11, 2009, by and between the Company and Alexander Otto | Current Report on Form 8-K (Filed with the SEC on May 11, 2009; File No. 001-11690) | |||
21 | 21.1 | List of Subsidiaries | Annual Report on Form 10-K (Filed with the SEC on February 26, 2015; File No. 001-11690) | |||
23 | 23.1 | Consent of PricewaterhouseCoopers LLP | Annual Report on Form 10-K (Filed with the SEC on February 26, 2015; File No. 001-11690) | |||
23 | 23.2 | Consent of PricewaterhouseCoopers LLP | Filed herewith | |||
23 | 23.3 | Consent of Deloitte Touche Tohmatsu | Filed herewith | |||
31 | 31.1 | Certification of principal executive officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 | Filed herewith | |||
31 | 31.2 | Certification of principal financial officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 | Filed herewith | |||
32 | 32.1 | Certification of chief executive officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 | Filed herewith | |||
32 | 32.2 | Certification of chief financial officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 | Filed herewith | |||
99 | 99.1 | DDRM Properties LLC Consolidated Financial Statements | Filed herewith | |||
99 | 99.2 | Sonae Sierra Brazil BV SARL Consolidated Financial Statements | Filed herewith | |||
101 | 101.INS | XBRL Instance Document | Annual Report on Form 10-K (Filed with the SEC on February 26, 2015; File No. 001-11690) | |||
101 | 101.SCH | XBRL Taxonomy Extension Schema Document | Annual Report on Form 10-K (Filed with the SEC on February 26, 2015; File No. 001-11690) | |||
101 | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | Annual Report on Form 10-K (Filed with the SEC on February 26, 2015; File No. 001-11690) | |||
101 | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | Annual Report on Form 10-K (Filed with the SEC on February 26, 2015; File No. 001-11690) |
Exhibit No. Reg. S-K Item 601 |
Form 10-K Exhibit No. |
Description |
Filed Herewith or Incorporated Herein by Reference | |||
101 | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | Annual Report on Form 10-K (Filed with the SEC on February 26, 2015; File No. 001-11690) | |||
101 | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | Annual Report on Form 10-K (Filed with the SEC on February 26, 2015; File No. 001-11690) |
* | Management contracts and compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K. |
** | Certain immaterial schedules and exhibits to this exhibit have been omitted pursuant to the provisions of Regulation S-K, Item 601(b)(2). A copy of any of the omitted schedules and exhibits will be furnished to the Securities and Exchange Commission upon request. |
c) | Financial Statements of Unconsolidated Joint Ventures: |
Financial statements for two of the Companys unconsolidated joint venture companies, DDRM Properties LLC and Sonae Sierra Brazil BV SARL, are included as they meet the significant subsidiary definition of S-X 210.1-02(w) for the year ended December 31, 2013. The financial statements for these companies are filed with this Amendment.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DDR Corp. | ||
By: | /s/ Christa A. Vesy | |
Christa A. Vesy | ||
Executive Vice President and Chief Accounting Officer |
Date: March 12, 2015
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-184221, 333-184224) and in the Registration Statements on Form S-8 (Nos. 333-76537, 333-108681, 333-117069, 333-147270, 333-162453, 333-181442) of DDR Corp. of our report dated March 19, 2014, except for the effects of discontinued operations discussed in Note 10, as to which the date is March 12, 2015 relating to the consolidated financial statements of DDRM Properties LLC, appearing in Amendment No. 1 to the Annual Report on Form 10-K of DDR Corp. for the year ended December 31, 2014.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
March 12, 2015
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement on Form S-3 (Nos. 333-184221, 333-184224) and in the Registration Statement on Form S-8 (333-76537; 333-108681; 333-117069; 333-147270, 333-162453, 333-181442) of DDR Corp. of our report dated March 19, 2014, relating to the consolidated financial statements of Sonae Sierra Brazil BV Sarl (which report expresses an unmodified opinion and includes an emphasis-of-matter paragraph relating to information on the nature and effect of differences in accounting practices in conformity with IFRS as issued by IASB and accounting principles generally accepted in United States of America, presented in Note 32 to the consolidated financial statements), appearing in Amendment No. 1 to the Annual Report on Form 10-K of DDR Corp. for the year ended December 31, 2014.
São Paulo, Brazil
March 12, 2015
/s/ DELOITTE TOUCHE TOHMATSU |
Auditores Independentes |
EXHIBIT 31.1
CERTIFICATIONS
I, David J. Oakes, certify that:
1. | I have reviewed this Annual Report on Form 10-K as amended by Amendment No. 1 to Form 10-K of DDR Corp.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
March 12, 2015
Date
/s/ David J. Oakes |
|
David J. Oakes |
President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATIONS
I, Luke J. Petherbridge, certify that:
6. | I have reviewed this Annual Report on Form 10-K as amended by Amendment No. 1 to Form 10-K of DDR Corp.; |
1. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
2. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
3. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
4. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
March 12, 2015
Date
/s/ Luke J. Petherbridge |
Luke J. Petherbridge |
Chief Financial Officer and Treasurer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I, David J. Oakes, President and Chief Executive Officer of DDR Corp. (the Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Annual Report on Form 10-K of the Company for the period ended December 31, 2014, as amended by Amendment No. 1 to Form 10-K, as filed with the Securities and Exchange Commission (the Report), which this certification accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
/s/ David J. Oakes |
David J. Oakes |
President and Chief Executive Officer |
March 12, 2015 |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I, Luke J. Petherbridge, Chief Financial Officer and Treasurer of DDR Corp. (the Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Annual Report on Form 10-K of the Company for the period ended December 31, 2014, as amended by Amendment No. 1 to Form 10-K, as filed with the Securities and Exchange Commission (the Report), which this certification accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
/s/ Luke J. Petherbridge |
Luke J. Petherbridge |
Chief Financial Officer and Treasurer |
March 12, 2015 |
EXHIBIT 99.1
DDRM PROPERTIES LLC
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
DDRM Properties LLC
Consolidated Financial Statements
Table of Contents
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
Contents
Independent Auditors Report |
1 | |||
Consolidated Balance Sheets |
2 | |||
Consolidated Statements of Operations and Comprehensive Loss |
3 | |||
Consolidated Statements of Members Capital |
4 | |||
Consolidated Statements of Cash Flows |
5-6 | |||
Notes to Consolidated Financial Statements |
7-22 |
Independent Auditors Report
To DDR Corp. and DDR Manatee Master REIT, Inc.:
We have audited the accompanying consolidated financial statements of DDRM Properties LLC and its subsidiaries, which comprise the consolidated balance sheet as of December 31, 2013, and the related consolidated statements of operations and comprehensive loss, of members capital and of cash flows for the year then ended.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Companys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DDRM Properties LLC and its subsidiaries at December 31, 2013, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Other Matter
The accompanying consolidated balance sheet of DDRM Properties LLC and its subsidiaries as of December 31, 2014, and the related consolidated statements of operations and comprehensive loss, of members capital and of cash flows for the year then ended and for the year ended December 31, 2012 are presented for purposes of complying with Rule 3-09 of SEC Regulation S-X, however, Rule 3-09 does not require the 2014 and 2012 financial statements to be audited and are therefore not covered by this report.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
March 19, 2014, except for the effects of discontinued operations discussed in Note 10 to the consolidated financial statements, as to which the date is March 12, 2015
DDRM Properties LLC
Consolidated Balance Sheets
As of December 31, 2014 and 2013 (December 31, 2014 not Covered by Auditors Report)
December 31, | ||||||||
2014 | 2013 | |||||||
Assets |
||||||||
Real estate rental property: |
||||||||
Land |
$ | 366,281,299 | $ | 383,411,136 | ||||
Building and building improvements |
966,569,488 | 1,003,235,812 | ||||||
Tenant improvements |
47,737,894 | 37,151,120 | ||||||
|
|
|
|
|||||
1,380,588,681 | 1,423,798,068 | |||||||
Less accumulated depreciation |
(256,527,921 | ) | (230,197,884 | ) | ||||
|
|
|
|
|||||
1,124,060,760 | 1,193,600,184 | |||||||
Construction in progress |
1,033,956 | 1,211,731 | ||||||
|
|
|
|
|||||
Real estate, net |
1,125,094,716 | 1,194,811,915 | ||||||
Cash and cash equivalents |
25,579,650 | 17,975,463 | ||||||
Restricted cash |
1,411,193 | 1,736,460 | ||||||
Accounts receivable, net |
12,105,110 | 13,333,507 | ||||||
Deferred financing costs, net of accumulated amortization of $9,482,783 as of 2014 and $8,271,929 as of 2013 |
2,995,896 | 4,409,801 | ||||||
Deferred lease costs, net of accumulated amortization of $9,817,124 as of 2014 and $8,074,823 as of 2013 |
11,172,694 | 11,072,432 | ||||||
Intangible assets, net of accumulated amortization of $39,138,943 as of 2014 and $38,087,247 as of 2013 |
2,002,683 | 4,847,529 | ||||||
Prepaid expenses and other assets |
247,606 | 68,335 | ||||||
|
|
|
|
|||||
Total assets |
$ | 1,180,609,548 | $ | 1,248,255,442 | ||||
|
|
|
|
|||||
Liabilities and Members Capital |
||||||||
Mortgage notes payable |
$ | 920,023,783 | $ | 928,620,646 | ||||
Accrued interest |
3,810,263 | 3,831,593 | ||||||
Accrued real estate taxes |
2,445,325 | 1,786,332 | ||||||
Accounts payable and other accrued liabilities |
8,845,855 | 12,602,897 | ||||||
Prepaid tenant rents |
2,582,777 | 3,114,084 | ||||||
Tenant security deposits |
3,241,269 | 3,113,882 | ||||||
|
|
|
|
|||||
Total liabilities |
940,949,272 | 953,069,434 | ||||||
|
|
|
|
|||||
Members capital |
238,478,176 | 293,465,108 | ||||||
Accumulated other comprehensive income |
1,182,100 | 1,720,900 | ||||||
|
|
|
|
|||||
Total members capital |
239,660,276 | 295,186,008 | ||||||
|
|
|
|
|||||
Total liabilities and members capital |
$ | 1,180,609,548 | $ | 1,248,255,442 | ||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
- 2 -
DDRM Properties LLC
Consolidated Statements of Operations and Comprehensive Loss
For the Years Ended December 31, 2014, 2013 and 2012
(Years Ended December 31, 2014 and 2012 not Covered by Auditors Report)
For the Year Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Revenues from operations: |
||||||||||||
Minimum rents |
$ | 93,095,869 | $ | 87,080,352 | $ | 86,753,019 | ||||||
Percentage and overage rents |
321,597 | 304,176 | 146,432 | |||||||||
Recoveries from tenants |
28,001,499 | 26,607,785 | 25,909,965 | |||||||||
Ancillary and other income |
6,077,301 | 1,222,319 | 1,755,458 | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
127,496,266 | 115,214,632 | 114,564,874 | |||||||||
|
|
|
|
|
|
|||||||
Rental operation expenses: |
||||||||||||
Operating and maintenance |
20,089,689 | 19,533,007 | 21,193,221 | |||||||||
Real estate taxes |
16,018,632 | 15,496,675 | 15,431,739 | |||||||||
Asset management fees (Note 5) |
3,338,507 | 3,338,507 | 3,338,507 | |||||||||
Management fees (Note 5) |
4,605,449 | 4,443,221 | 4,604,385 | |||||||||
General and administrative |
1,765,613 | 1,580,149 | 1,726,550 | |||||||||
Depreciation and amortization |
41,131,794 | 42,689,786 | 43,682,033 | |||||||||
Impairment charges |
17,652,802 | 12,764,520 | | |||||||||
|
|
|
|
|
|
|||||||
Total expenses |
104,602,486 | 99,845,865 | 89,976,435 | |||||||||
|
|
|
|
|
|
|||||||
Operating income |
22,893,780 | 15,368,767 | 24,588,439 | |||||||||
|
|
|
|
|
|
|||||||
Other income (expense): |
||||||||||||
Interest income |
1,844 | 4,413 | 1,959 | |||||||||
Interest expense |
(52,487,575 | ) | (52,553,157 | ) | (53,011,999 | ) | ||||||
|
|
|
|
|
|
|||||||
(52,485,731 | ) | (52,548,744 | ) | (53,010,040 | ) | |||||||
|
|
|
|
|
|
|||||||
Loss from continuing operations |
(29,591,951 | ) | (37,179,977 | ) | (28,421,601 | ) | ||||||
Discontinued operations: |
||||||||||||
Income (loss) from discontinued operations |
139,990 | (13,191,553 | ) | (664,160 | ) | |||||||
Gain (loss) on disposition of real estate (Note 10) |
9,565,029 | | (226,476 | ) | ||||||||
|
|
|
|
|
|
|||||||
9,705,019 | (13,191,553 | ) | (890,636 | ) | ||||||||
Gain on disposition of real estate |
| 131,475 | 579,139 | |||||||||
|
|
|
|
|
|
|||||||
Net loss |
(19,886,932 | ) | (50,240,055 | ) | (28,733,098 | ) | ||||||
|
|
|
|
|
|
|||||||
Other comprehensive loss: |
||||||||||||
Amortization of interest rate contracts |
(538,800 | ) | (538,800 | ) | (538,800 | ) | ||||||
|
|
|
|
|
|
|||||||
Comprehensive loss |
$ | (20,425,732 | ) | $ | (50,778,855 | ) | $ | (29,271,898 | ) | |||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
- 3 -
DDRM Properties LLC
Consolidated Statements of Members Capital
For the Years Ended December 31, 2014, 2013 and 2012
(Years Ended December 31, 2014 and 2012 not Covered by Auditors Report)
Total | ||||
Balance at December 31, 2011 |
$ | 383,736,761 | ||
Distributions |
(3,500,000 | ) | ||
Net loss |
(28,733,098 | ) | ||
Other comprehensive loss: |
||||
Amortization of interest rate contracts |
(538,800 | ) | ||
|
|
|||
Balance at December 31, 2012 |
$ | 350,964,863 | ||
Distributions |
(5,000,000 | ) | ||
Net loss |
(50,240,055 | ) | ||
Other comprehensive loss: |
||||
Amortization of interest rate contracts |
(538,800 | ) | ||
|
|
|||
Balance at December 31, 2013 |
$ | 295,186,008 | ||
Distributions |
(35,100,000 | ) | ||
Net loss |
(19,886,932 | ) | ||
Other comprehensive loss: |
||||
Amortization of interest rate contracts |
(538,800 | ) | ||
|
|
|||
Balance at December 31, 2014 |
$ | 239,660,276 | ||
|
|
The accompanying notes are an integral part of these consolidated financial statements.
- 4 -
DDRM Properties LLC
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2014, 2013 and 2012
(Years Ended December 31, 2014 and 2012 not Covered by Auditors Report)
For the Year Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Cash flow from operating activities: |
||||||||||||
Net loss |
$ | (19,886,932 | ) | $ | (50,240,055 | ) | $ | (28,733,098 | ) | |||
Adjustments to reconcile net loss to net cash flow provided by operating activities: |
||||||||||||
Depreciation and amortization |
41,892,488 | 45,202,321 | 45,501,279 | |||||||||
Amortization of deferred financing costs and interest rate contracts |
834,685 | 857,341 | 809,060 | |||||||||
Amortization of above- and below- market leases, net |
(4,845,105 | ) | (743,477 | ) | (743,477 | ) | ||||||
Amortization of debt discount and premium |
| (235 | ) | 2,279 | ||||||||
Impairment charges |
17,652,802 | 25,234,220 | 507,269 | |||||||||
Gain on disposition of real estate |
(9,565,029 | ) | (131,475 | ) | (352,663 | ) | ||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable, net |
860,278 | (1,688,760 | ) | 4,469,051 | ||||||||
Prepaid expenses and other assets |
(179,271 | ) | 81,623 | (15,611 | ) | |||||||
Accrued interest |
(21,330 | ) | (5,276 | ) | (36,965 | ) | ||||||
Accrued real estate taxes |
658,993 | (1,213 | ) | 267,761 | ||||||||
Accounts payable and other accrued liabilities |
(1,980,109 | ) | (1,280,529 | ) | 436,223 | |||||||
Prepaid tenant rents |
(531,307 | ) | 308,868 | 812,600 | ||||||||
Tenant security deposits |
253,249 | 175,763 | 142,617 | |||||||||
|
|
|
|
|
|
|||||||
Total adjustments |
45,030,344 | 68,009,171 | 51,799,423 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
25,143,412 | 17,769,116 | 23,066,325 | |||||||||
|
|
|
|
|
|
|||||||
Cash flow from investing activities: |
||||||||||||
Net proceeds from disposition of real estate |
43,284,553 | 252,655 | 7,733,815 | |||||||||
Construction of and improvements to real estate and related assets |
(14,110,373 | ) | (10,116,547 | ) | (6,225,116 | ) | ||||||
Change in restricted cash |
325,267 | (671,024 | ) | 295,206 | ||||||||
Payment of lease procurement costs |
(3,341,809 | ) | (4,047,675 | ) | (3,620,681 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash provided by (used in) investing activities |
26,157,638 | (14,582,591 | ) | (1,816,776 | ) | |||||||
|
|
|
|
|
|
|||||||
Cash flow from financing activities: |
||||||||||||
Proceeds of mortgage notes payable |
| 17,000,000 | | |||||||||
Payments of mortgage notes payable |
(8,596,863 | ) | (11,711,812 | ) | (8,790,510 | ) | ||||||
Payments of debt issuance cost |
| (399,676 | ) | | ||||||||
Distributions to Members |
(35,100,000 | ) | (5,000,000 | ) | (3,500,000 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash used in financing activities |
(43,696,863 | ) | (111,488 | ) | (12,290,510 | ) | ||||||
|
|
|
|
|
|
|||||||
Net change in cash and cash equivalents |
7,604,187 | 3,075,037 | 8,959,039 | |||||||||
Cash and cash equivalents at beginning of period |
17,975,463 | 14,900,426 | 5,941,387 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents at end of period |
$ | 25,579,650 | $ | 17,975,463 | $ | 14,900,426 | ||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
- 5 -
DDRM Properties LLC
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2014, 2013 and 2012
(Years Ended December 31, 2014 and 2012 not Covered by Auditors Report)
For the Year Ended December 31 | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Supplemental disclosure of non-cash investing and financing activities: |
||||||||||||
Write-off of fully amortized tenant improvements |
$ | 680,723 | $ | 380,123 | $ | 506,103 | ||||||
Write-off of fully amortized loan costs |
194,193 | 188,922 | 76,200 | |||||||||
Write-off of fully amortized deferred lease costs |
912,362 | 513,793 | 473,280 | |||||||||
Write-off of fully amortized intangible assets |
200,057 | 283,550 | 395,561 | |||||||||
Acquired fair value of real estate assets (Note 1) |
1,364,888 | | | |||||||||
Write-off of fully amortized building costs |
| | 1,195,123 | |||||||||
Capital expenditures included in accounts payable and other accrued liabilities |
2,600,690 | 753,264 | 1,248,859 |
The foregoing transactions did not provide or use cash, and accordingly, are not reflected in the consolidated statements of cash flows.
The accompanying notes are an integral part of these consolidated financial statements.
- 6 -
DDRM Properties LLC
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
1. Organization of Company
Background
DDRM Properties LLC (the Company) was formed in the state of Delaware on February 27, 2007 to acquire, own, and operate shopping centers (the Properties) located throughout the United States. The Company first acquired the Properties on June 8, 2007.
The Companys Members are DDR Corp. (DDR) and DDR Manatee Master REIT, Inc. (the Master REIT). The Master REIT is the Managing Member of the Company. DDR and the Master REIT have a 20% and 80% membership interest, respectively, and are collectively referred to as the Members and each, individually, a Member.
The Master REIT is responsible for the day-to-day management of the Company as the Managing Member. The Company has engaged DDR Property Management LLC (DDRPM), a wholly- owned subsidiary of DDR, to act as the Property Manager.
Nature of Business
The Company is engaged in the business of owning and operating shopping centers. The tenant base includes primarily national retail chains and local retailers. Consequently, the Companys credit risk is concentrated in the retail industry. Adverse changes in general or local economic conditions could result in the inability of some tenants of the Company to meet their lease obligations and could adversely affect the Companys ability to attract and retain tenants.
Revenues derived from the Companys largest tenant Publix aggregated 11.8%, 14.2% and 14.1% of total revenues for the years ended December 31, 2014, 2013 and 2012, respectively.
The Properties
The Company owned 56, 59 and 59 properties located in eleven states as of December 31, 2014, 2013 and 2012, respectively, which are each owned by a wholly-owned single member limited liability company. The total gross leasable area of the Properties is 7,893,312 square feet (unaudited), 8,185,405 square feet (unaudited), and 8,184,315 square feet (unaudited) as of December 31, 2014, 2013 and 2012, respectively.
During the year ended December 31, 2014, the Company sold three properties and received net proceeds of $43,284,553. A portion of the net proceeds was utilized to pay down $7,530,178 of outstanding debt. The Company took title of a building valued at $1,364,888, through an assignment and assumption of a ground lease during the year ended December 31, 2014.
- 7 -
DDRM Properties LLC
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
During the year ended December 31, 2013, the Company received net proceeds of $252,655 for a land condemnation of approximately 0.17 (unaudited) acres of land adjacent to a shopping center. The net proceeds were utilized to pay down outstanding debt.
During the year ended December 31, 2012, the Company sold one property and a land parcel and received net proceeds of $7,733,815. A portion of the proceeds was used to pay down outstanding debt.
Significant Membership Terms
The Companys profits and losses are allocated to the Members in proportion to their respective percentage interests.
The Companys cash flows are distributed to the Members on a quarterly basis in proportion to their respective percentage interests.
The term of the Company shall continue in perpetuity until one of the following events occurs: i) an election to dissolve the Company made by the Members; ii) the sale or disposition of all or substantially all of the Properties and other assets of the Company; iii) entry of a decree of judicial dissolution of the Company pursuant to the provisions of the Act; iv) the liquidation and dissolution of the parent entity of the Master REIT; or v) any other circumstance requiring the liquidation of the Company pursuant to any provision of the Agreement or any other Fund Governing Document.
2. Summary of Significant Accounting Principles
Basis of Presentation
These financial statements have been prepared pursuant to Rule 3-09 of SEC Regulation S-X for inclusion in the Form 10-K of DDR Corp., as the Company is an equity investee of DDR Corp. Pursuant to Rule 3-09, the financial statements as of and for the year ended December 31, 2014 are not required to be audited and they, therefore, are not covered by the audit report included herein.
Principles of Consolidation
The consolidated financial statements include the accounts of DDRM Properties LLC and its wholly-owned subsidiaries, all of which are limited liability companies. All significant intercompany balances and transactions have been eliminated.
- 8 -
DDRM Properties LLC
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
Real Estate
Real estate assets are stated at cost less accumulated depreciation.
Depreciation is provided on a straight-line basis over the estimated useful lives of the assets as follows:
Building and building improvements | 5 to 31.5 years | |
Tenant improvements | Useful lives, which approximate lease terms, where applicable |
Depreciation expense on buildings and tenant improvements for the year ended December 31, 2014 was $36,350,827, which includes $680,723 related to the write-off of unamortized basis associated with the early termination of tenant leases. Depreciation expense on buildings and tenant improvements was $36,815,763, which includes $380,123 related to the write-off of unamortized basis associated with the early termination of tenant leases for the year ended December 31, 2013. Depreciation expense on buildings and tenant improvements was $37,167,943, which includes $1,115,785 related to the write-off of unamortized basis associated with the demolition of a building for redevelopment and the early termination of tenant leases for the year ended December 31, 2012. Expenditures for maintenance and repairs are charged to operations as incurred. Significant expenditures, which improve or extend the life of the asset, are capitalized.
The Company reviews its real estate assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An asset is considered impaired when the undiscounted future cash flows are not sufficient to recover the assets carrying value. The determination of undiscounted cash flows requires significant estimates made by management and is based on the most likely expected course of action at the balance sheet date based on current plans, intended hold periods and available market information. The determination of anticipated cash flows is inherently subjective and is based, in part, on assumptions regarding holding periods, future occupancy, rental rates and capital requirements that could differ materially from actual results. If such impairment is present, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. See Note 9 for a discussion related to impairment charges recorded during 2014, 2013 and 2012.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at acquisition to be cash equivalents. The Company maintains cash deposits with a major financial institution which from time to time may exceed federally insured limits. The Company periodically assesses the financial condition of the institution and believes that the risk of loss is minimal.
- 9 -
DDRM Properties LLC
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
Restricted Cash
Pursuant to the provisions with the Companys mortgage notes payable, funds are required to be held in escrow for the payment of real estate taxes and various capital expenditures. All such amounts are classified as restricted cash in the consolidated balance sheets.
Deferred Financing Costs
Costs incurred in obtaining long-term financing are capitalized and amortized. Amortization expense was $1,373,485, $1,396,141 and $1,347,860 for the years ended December 31, 2014, 2013 and 2012, respectively.
Deferred Lease Costs
Deferred lease costs represent direct costs paid to enter into tenant leases and are amortized over the related lease term. Amortization expense was $2,866,610, $2,637,260 and $2,437,915, which includes $912,362, $513,793 and $180,861 related to the write-off of unamortized costs associated with the early termination of tenant leases for the years ended December 31, 2014, 2013 and 2012, respectively.
Intangible Assets and Liabilities
Intangible assets and liabilities (in the case of below-market leases) generally consist of in-place leases, tenant relationships, above-market leases, and below-market leases, which were recorded at the time of acquisition of certain properties. Above- and below-market lease values are recorded based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) managements estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the estimated term of any below-market, fixed-rate renewal options for below-market leases. The purchase price is further allocated to in-place lease values and tenant relationship values based on managements evaluation of the specific characteristics of the acquired lease portfolio and the Companys overall relationship with the anchor tenants. The value of in-place leases and tenant relationships are amortized to depreciation and amortization expense over the weighted-average remaining initial term of the lease (and expected renewal periods for tenant relationships); however, no amortization period for the intangible assets will exceed the remaining depreciable life of the building. Above- and or below-market leases are amortized over the remaining life of the respective leases (plus fixed-rate renewal periods for below-market leases) as a decrease or increase to minimum rent, respectively.
- 10 -
DDRM Properties LLC
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
The Companys intangible assets and liabilities are comprised of the following (in thousands):
Net Carrying Value at December 31, |
Useful |
Amortization For the years ended December 31, |
||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2012 | ||||||||||||||||||
In-place leases (1) |
$ | 1,085.4 | $ | 3,810.3 | 7-10yrs | $ | 2,675.1 | $ | 5,749.3 | $ | 5,895.4 | |||||||||||
Above-market leases |
917.3 | 1,037.2 | 13-16yrs | 119.9 | 119.9 | 119.9 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||
2,002.7 | 4,847.5 | |||||||||||||||||||||
Below-market leases (liability) (2) |
2,532.6 | 7,497.6 | 8-21yrs | 4,965.2 | 863.4 | 863.4 |
(1) | Includes value allocated to in-place leases, lease origination and tenant relationships. |
(2) | Classified in accounts payable and other accrued liabilities in the consolidated balance sheets. |
The net estimated amortization pertaining to the Companys finite-lived intangible assets and liabilities for the five years ending December 31, is as follows:
2015 |
$ | 98,470 | ||
2016 |
174,365 | |||
2017 |
(72,989 | ) | ||
2018 2019 |
|
(158,555 (53,469 |
) ) |
In the event that a tenant terminates its lease, the unamortized portion of the intangible values is written off as an adjustment to revenue or expense, as appropriate. During the year ended December 31, 2014, the unamortized portion of a below-market lease in the amount of $4,234,829 was written off as an adjustment to revenue as the tenant did not exercise its option upon expiration of the original lease term.
Revenue Recognition
Minimum rents from tenants are recognized using the straight-line method over the lease term. Percentage and overage rents are recognized after the reported tenants sales have exceeded the applicable sales breakpoint. Revenues associated with tenant reimbursements are recognized in the period in which the expenses are incurred based upon provisions of the individual tenant leases. Lease termination fees are generally recognized upon termination of a tenants lease and vacating the space with no further rights.
- 11 -
DDRM Properties LLC
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
Income Taxes
The Company has elected to be treated as a partnership for federal income tax purposes. Accordingly, no provision has been made in the accompanying consolidated financial statements for any federal income taxes since each item of income, gain, loss, deduction or credit is reportable by the Members in their respective income tax returns. The statues of limitations for income tax returns remain open for the years 2011 through 2014.
Interest
Interest paid aggregated $51,800,635, $51,998,803 and $52,585,256 for the years ended December 31, 2014, 2013 and 2012, respectively.
Disposition of Real Estate
Gains from dispositions are recognized using the full accrual or partial sale methods, provided that various criteria relating to the terms of sale and any subsequent involvement by the Company with the properties sold are met. If the criteria for sale recognition or gain recognition are not met because of a form of continuing involvement, the accounting for such transactions is dependent on the nature of the continuing involvement. In certain cases, a sale might not be recognized, and in others all or a portion of the gain might be deferred. Pursuant to the definition of a component of an entity and, assuming no significant continuing involvement or cash flows, the sale of a retail operating property is considered discontinued operations. Interest expense, which is specifically identifiable to the property, and the operations and gain or loss on sale are reported as discontinued operations.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
New Accounting Standards
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. The objective of ASU 2014-09 is to establish a single comprehensive five-step model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the
- 12 -
DDRM Properties LLC
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. Most significantly for the real estate industry, leasing transactions are not within the scope of the new standard. A majority of the Companys tenant-related revenue is recognized pursuant to lease agreements. The new guidance is effective for annual reporting periods beginning after December 15, 2016. The Company may elect to defer adoption for one year. Entities have the option of using either a full retrospective or modified approach to adopt ASU 2014-09. The Company is currently assessing the impact, if any, the adoption of this standard will have on its financial statements and has not decided upon the method of adoption.
Discontinued Operations
In April 2014, the FASB issued a final standard that changed the criteria for determining which disposals are presented as discontinued operations. The revised definition of a discontinued operation is a component or group of components that has been disposed of or is classified as held for sale, together as a group in a single transaction, and represents a strategic shift that has (or will have) a major effect on an entitys financial results. The FASB agreed that a strategic shift includes a disposal of (i) a separate major line of business, (ii) a separate major geographical area of operations, or (iii) a combination of parts of (i) or (ii) that make up a major part of an entitys operations and financial results. A business that, upon acquisition, qualifies as held for sale will also be a discontinued operation. The FASB also reaffirmed its decision to no longer preclude presentation of a disposal as a discontinued operation if (a) there is significant continuing involvement with a component after its disposal, or (b) there are operations and cash flows of the component that have not been eliminated from the reporting entitys ongoing operations. The Company is required to adopt the standard in annual periods beginning on or after December 15, 2014, and interim periods beginning on or after December 15, 2015. Beginning in 2015, the Company will apply the new guidance, as applicable, to future disposals of its shopping centers or classifications as held for sale. The Company believes that a significant portion of its ordinary course shopping center disposals will not qualify for discontinued operations presentation under this new standard.
3. Accounts Receivable
Accounts receivable, other than straight-line rents receivable, are expected to be collected within one year and are net of estimated unrecoverable amounts of $1,616,359 and $1,751,483 at December 31, 2014 and 2013, respectively. At December 31, 2014 and 2013, straight-line rents receivable, net of estimated uncollectible amounts of $472,458 and $467,935, respectively, aggregated $6,354,753 and $6,267,332, respectively. The Company analyzes accounts receivable, tenant credit worthiness and current economic trends when evaluation the adequacy of unrecoverable amounts.
- 13 -
DDRM Properties LLC
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
4. Mortgage Notes Payable
The Company has the following mortgage notes payable outstanding:
Carrying Value at December 31, |
Interest Rate |
Maturity Date |
||||||||||||||
2014 | 2013 | |||||||||||||||
2007 Pooled Secured Financing |
$ | 883,504,936 | $ | 883,504,936 | 5.60 | % | 07/05/17 | |||||||||
2010 Pooled Secured Financing |
20,106,298 | 28,379,019 | 4.21 | % | 04/11/15 | |||||||||||
2013 Pooled Secured Financing |
16,412,549 | 16,736,691 | 3.56 | % | 02/01/18 | |||||||||||
|
|
|
|
|||||||||||||
$ | 920,023,783 | $ | 928,620,646 | |||||||||||||
|
|
|
|
The cross-collateralized 2007 pooled secured financing requires monthly payments of interest only with the principal due at maturity.
The cross-collateralized 2010 pooled secured financing requires monthly payments of principal and interest, based upon a 30-year amortization schedule. In June 2014, net proceeds of $7,530,178 received from the sale of a shopping center were utilized to pay down a portion of the outstanding debt.
In January 2013, the separate mortgage note payable for Hilliard Rome Commons was paid off at maturity. The Company obtained new mortgage financing for Hilliard Rome Commons and Heather Island Plaza (2013 Pooled Secured Financing) aggregating $17.0 million at a fixed interest rate of 3.56% with required monthly payments of principal and interest, based on a 30-year amortization schedule for a term of five years.
The Company repaid a separate mortgage note payable of $241,937 at maturity without penalty during the year ended December 31, 2013.
The number of properties collateralized and the net carrying value of the collateralized properties as of December 31, is as follows:
Collateralized Properties |
Net Carrying Value of Collateralized Properties |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
2007 Pooled Secured Financing |
52 | 52 | $ | 1,061,125,235 | $ | 1,081,573,045 | ||||||||||
2010 Pooled Secured Financing |
2 | 3 | 42,918,043 | 65,953,125 | ||||||||||||
2013 Pooled Secured Financing |
2 | 2 | 27,269,055 | 28,047,901 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
56 | 57 | $ | 1,131,312,333 | $ | 1,175,574,071 | |||||||||||
|
|
|
|
|
|
|
|
- 14 -
DDRM Properties LLC
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
As of December 31, 2014, the scheduled principal payments of the mortgage notes payable for the next four years are as follows:
2015 |
$ | 20,442,336 | ||
2016 |
346,742 | |||
2017 |
883,866,030 | |||
2018 |
15,368,675 | |||
|
|
|||
$ | 920,023,783 | |||
|
|
5. Transactions with Related Parties (including Discontinued Operations)
DDRPM is entitled to an asset management fee equal to 0.75% of the gross asset value for each property as defined in the limited partnership agreement. Asset management fees incurred by the Company aggregated $3,561,853, $3,661,690 and $3,685,834 for the years ended December 31, 2014, 2013 and 2012, respectively.
Management fees earned by DDR and DDRPM are determined pursuant to provisions set forth in the management and leasing agreement. The management fees earned by DDR and DDRPM are determined at an amount equal to 4% of gross rental receipts and are charged to operations as incurred. Management fees incurred by the Company aggregated $4,711,033, $4,611,028 and $4,782,886 for the years ended December 31, 2014, 2013 and 2012, respectively.
DDR employees perform certain maintenance services at the Properties. Maintenance services incurred by the Company aggregated $665,995, $616,956 and $586,701 for the years ended December 31, 2014, 2013 and 2012, respectively, which are recorded within operating and maintenance expenses on the consolidated statements of operations and comprehensive loss.
DDR and DDRPM have the ability to earn leasing commissions for the rental of space to tenants in accordance with the management and leasing agreement. Lease commissions are calculated based on whether the lease is a new lease or renewal of an existing lease, the rental income earned over the life of the lease or the square footage the tenant will occupy under the lease. Lease commissions incurred by the Company aggregated $3,191,107, $3,878,669 and $2,694,953 for the years ended December 31, 2014, 2013 and 2012, respectively, which are recorded within deferred lease costs, net of accumulated amortization on the consolidated balance sheets.
DDR and DDRPM have the ability to earn construction management fees which are determined in accordance with the management and leasing agreement. Except for the redevelopment or expansion of a property, construction management fees are calculated based on 5% of the cost of tenant improvements and other capital improvements, plus reimbursement of out of pocket costs and third party expenses. The construction management fee for a redevelopment or an expansion is determined by the Company and DDR and DDRPM in connection with the approval of development expenditures. The construction management fee is payable as costs for the work
- 15 -
DDRM Properties LLC
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
conducted are due and is subject to adjustment once the final costs for the work are determined. The Company records the construction management fees to buildings and tenant improvements, as appropriate. The capitalized cost is depreciated over the estimated useful life of the related asset. Construction management fees incurred by the Company aggregated $542,387, $445,289 and $292,973 for the years ended December 31, 2014, 2013 and 2012, respectively.
DDR performs legal services on behalf of the Company. Legal fees incurred by the Company and paid to DDR aggregated $364,200, $335,124 and $395,370 for the years ended December 31, 2014, 2013 and 2012, respectively, which are recorded within general and administrative expenses on the consolidated statements of operations and comprehensive loss.
DDR employees perform certain tax preparation services on behalf of the Company. Tax preparation fees incurred by the Company aggregated $13,440, $13,037 and $12,867 for the years ended December 31, 2014, 2013 and 2012, respectively, which are recorded within general and administrative expenses on the consolidated statements of operations and comprehensive loss.
The Company pays ancillary fees to DDR and DDRPM equal to 25% of all funds received from ancillary income sources, as defined in the management and leasing agreement. Ancillary income fees incurred by the Company aggregated $230,528, $281,492 and $338,829 for the years ended December 31, 2014, 2013 and 2012, respectively. These fees were recorded within general and administrative expenses on the consolidated statements of operations and comprehensive loss.
In accordance with the management agreement, DDR arranges for insurance coverage from insurers authorized to do business in the United States, which provide liability, property and flood coverage. In 2014, 2013 and 2012, the Company remitted to DDR insurance premiums associated with these insurance policies. Insurance premiums billed to the Company aggregated $4,877,940, $5,201,344 and $4,424,900 for the years ended December 31, 2014, 2013 and 2012, respectively.
Related Party Payables
As of December 31, 2014 and 2013, the Company had related party payables of $1,889,137 and $2,064,700, respectively. The amounts are included within accounts payable and other accrued liabilities on the consolidated balance sheets and represents amounts owed to DDR and DDRPM for the services and fees discussed above incurred pursuant to the property management and other service agreements.
- 16 -
DDRM Properties LLC
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
6. Commitments and Contingencies
Shopping center space is leased to tenants pursuant to agreements which provide for terms ranging from one to thirty years; and, in some cases, for annual rentals, which are subject to upward adjustments based on operating expense levels, sales volume, or contractual increases, as defined in the lease agreements.
The scheduled future minimum rents from rental property under the terms of all non-cancelable tenant leases, assuming no new or renegotiated leases or option extensions for such premises, for the subsequent five fiscal years ending December 31, are as follows:
2015 |
$ | 84,728,124 | ||
2016 |
72,801,113 | |||
2017 |
58,548,002 | |||
2018 |
46,656,981 | |||
2019 |
35,232,013 |
The Company and its subsidiaries are subject to various legal proceedings, which, taken together, are not expected to have a material adverse effect on the Company. The Company is also subject to a variety of legal actions for personal injury or property damage arising in the ordinary course of its business, most of which are covered by insurance. While the resolution of all matters cannot be predicted with certainty, management believes that the final outcome of such legal proceedings and claims will not have a material adverse effect on the Companys liquidity, financial position or results of operations.
7. Derivative Instruments
Cash Flow Hedges
During 2007, the Company entered into treasury locks with a notional amount of $600 million. The treasury locks were executed to hedge the benchmark interest rate associated with forecasted interest payments related to the then anticipated issuance of the mortgage notes payable. The treasury locks were terminated in connection with the issuance of $885 million in mortgage notes payable at the time the properties were acquired (Note 4). The effective portion of these hedging relationships has been deferred in accumulated other comprehensive income and will be reclassified into earnings over the term of the debt as an adjustment to interest expense. The Company expects that within the next 12 months it will reflect as an increase to earnings approximately $538,800 of the amount recorded in accumulated other comprehensive income.
The Company did not have any derivative financial instruments outstanding as of or during the years ended December 31, 2014, 2013 and 2012.
- 17 -
DDRM Properties LLC
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
8. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating fair value disclosures of financial instruments:
Cash and cash equivalents, restricted cash, accounts receivable, accounts payable:
The carrying amounts reported in the consolidated balance sheets for these financial instruments approximated fair value because of their short-term maturities.
Debt:
Using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality and risk profile, the Company has determined the fair value of its debt to be $987,113,726 and $961,111,384 at December 31, 2014 and 2013, respectively.
Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments.
9. Impairment Charges
Pursuant to the provisions of the standard, Accounting for the Impairment or Disposal of Long-Lived Assets, related to assets being held and used, the Company recorded impairment charges related to one, four and one properties aggregating $17,652,802, $25,234,220 and $507,269 during the years ended December 31, 2014, 2013 and 2012, respectively. The impairments were triggered primarily due to the Companys marketing of these assets for sale and managements assessment of the likelihood and timing of one or more potential transactions. Three properties were sold in 2014 and one property was sold in 2012 and as a result the impairment charges recorded in 2013 associated with these properties were reclassified to discontinued operations (Note 10) for the years ended December 31, 2014, 2013 and 2012, respectively.
Measurement of Fair Value
The Company is required to assess the fair value of impaired real estate assets. The valuation of impaired real estate assets is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows, the income capitalization approach considering prevailing market capitalization rates, analysis of recent comparable sales transactions, actual sales negotiations and bona fide purchase offers received from third parties and/or consideration of the amount that currently would be required to replace the asset, as adjusted for obsolescence. Although, the Company may consider multiple valuation techniques when measuring the fair value, in certain circumstances, a single valuation technique may be appropriate.
- 18 -
DDRM Properties LLC
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
Fair Value Hierarchy
The standard Fair Value Measurements specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). The following summarizes the fair value hierarchy:
| Level 1 Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities; |
| Level 2 Quoted prices for identical assets and liabilities in markets that are inactive, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly, such as interest rates and yield curves that are observable at commonly quoted intervals, and |
| Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. |
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
- 19 -
DDRM Properties LLC
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
Items Measured at Fair Value on a Non-Recurring Basis
The valuation techniques utilized by the Company were determined to fall under level 3 of the fair value hierarchy for the years ended December 31, 2014, 2013 and 2012, respectively.
Fair Value Measurements (in millions) | ||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Total Impairment |
||||||||||||||||
December 31, 2014 |
||||||||||||||||||||
Long-lived assets held and used |
$ | | $ | | $ | 25.7 | $ | 25.7 | $ | 17.7 | ||||||||||
December 31, 2013 |
||||||||||||||||||||
Long-lived assets held and used |
| | 22.5 | 22.5 | 12.8 | |||||||||||||||
Assets sold |
| | 19.2 | 19.2 | 12.5 | |||||||||||||||
December 31, 2012 |
||||||||||||||||||||
Assets sold |
| | 6.8 | 6.8 | 0.5 |
The following table presents quantitative information about the significant unobservable inputs used by the Company to determine the fair value of non-recurring items (in millions):
Quantitative Information about Level 3 Fair Value Measurements | ||||||||||||||
Fair Value at December, |
Valuation Technique |
Unobservable Input |
Range | |||||||||||
2014 | 2013 | |||||||||||||
Impairment of long-lived assets |
$ | 25.7 | $ | 41.7 | Income Capitalization Approach | Market Capitalization Rate | 6.75%-9.25% |
- 20 -
DDRM Properties LLC
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
10. Discontinued Operations
The company sold three properties in the year ended December 31, 2014 and one property in the year ended December 31, 2012 that were classified as discontinued operations for the years ended December 31, 2014, 2013 and 2012. Discontinued operations for the years ended December 31, 2014, 2013, and 2012 are as follows:
2014 | 2013 | 2012 | ||||||||||
Revenues: |
||||||||||||
Minimum rents |
$ | 1,888,009 | $ | 3,004,585 | $ | 3,260,118 | ||||||
Percentage and overage rents |
| 22,449 | 46,095 | |||||||||
Recoveries from tenants |
590,198 | 1,051,450 | 1,067,452 | |||||||||
Ancillary and other income |
78,756 | 100,219 | 116,879 | |||||||||
|
|
|
|
|
|
|||||||
Total revenues |
2,556,963 | 4,178,703 | 4,490,544 | |||||||||
Expenses: |
||||||||||||
Operating and maintenance |
485,802 | 834,094 | 1,186,781 | |||||||||
Real estate taxes |
365,023 | 636,927 | 651,795 | |||||||||
Management fees (Note 5) |
105,584 | 167,807 | 178,500 | |||||||||
Asset management fees (Note 5) |
223,346 | 323,182 | 347,327 | |||||||||
General and administrative |
197,730 | 127,237 | 116,178 | |||||||||
Depreciaton and amortization |
760,694 | 2,512,536 | 1,819,244 | |||||||||
Impairment charges |
| 12,469,700 | 507,269 | |||||||||
|
|
|
|
|
|
|||||||
Total expense |
2,138,179 | 17,071,483 | 4,807,094 | |||||||||
Other income (expense) |
||||||||||||
Interest income |
| (1,228 | ) | 20 | ||||||||
Interest expense |
(126,415 | ) | (297,475 | ) | (347,630 | ) | ||||||
Loss on debt extinguishments |
(152,379 | ) | (70 | ) | | |||||||
|
|
|
|
|
|
|||||||
(278,794 | ) | (298,773 | ) | (347,610 | ) | |||||||
|
|
|
|
|
|
|||||||
Income (loss) from discontinued operations |
139,990 | (13,191,553 | ) | (664,160 | ) | |||||||
Gain (loss) on disposition of real estate |
9,565,029 | | (226,476 | ) | ||||||||
|
|
|
|
|
|
|||||||
Income (loss) from discontinued operations |
$ | 9,705,019 | $ | (13,191,553 | ) | $ | (890,636 | ) | ||||
|
|
|
|
|
|
- 21 -
DDRM Properties LLC
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2013 and 2012
(Information for the Years Ended December 31, 2014
and 2012 not Covered by Auditors Report)
11. Subsequent Events
In accordance with ASC No. 855, Subsequent Events, the Company has evaluated subsequent events through the date of the Independent Auditors Report, the date the Companys financial statements were available to be issued.
In January 2015, the Company made a distribution of $10,000,000 to its Members utilizing net proceeds from the sale of a shopping center in December 2014.
In February 2015, the Company refinanced the 2010 Pooled Secured Financing for $20.6 million with an interest rate of LIBOR plus 140 basis points and a maturity date of February 11, 2016. Payments are interest only and the Company has the option to extend for an additional year.
- 22 -
EXHIBIT 99.2
Sonae Sierra Brazil BV SARL and Subsidiaries
Consolidated Financial Statements for the Period from January 1, 2014 to April 27, 2014 (unaudited) and for the Years Ended December 31, 2013 and 2012. |
Deloitte Touche Tohmatsu Rua Alexandre Dumas, 1.981 04717-906 - São Paulo - SP Brasil | ||||||
Telefone: (11) 5186-1000 Fac-símile: (11) 5181-2911 www.deloitte.com.br |
INDEPENDENT AUDITORS REPORT
To the Shareholders, Directors and Management of
Sonae Sierra Brazil BV SARL
São Paulo - SP - Brazil
We have audited the accompanying consolidated financial statements of Sonae Sierra Brazil BV SARL (the Company), which comprise the consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the three years ended December 31, 2013, and the related notes to the consolidated financial statements.
Managements responsibility for the consolidated financial statements
The Companys management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards - IFRS, as issued by the International Accounting Standards Board - IASB; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the United States of America - U.S. GAAS. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Companys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
© Deloitte Touche Tohmatsu. All rights reserved.
Deloitte Touche Tohmatsu
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sonae Sierra Brazil BV SARL as of December 31, 2013 and 2012 and the results of their operations and their cash flows for the three years ended December 31, 2013 in conformity with IFRS, as issued by IASB.
Emphasis of Matter
Accounting practices in conformity with IFRS, as issued by IASB, vary in certain significant respects from generally accepted accounting principles in the United States of America - U.S. GAAP. Information relating to the nature and effect of such differences is presented in note 32 to the consolidated financial statements. Our opinion is not modified with respect to this matter.
São Paulo, March 19, 2014
|
| |||
DELOITTE TOUCHE TOHMATSU | Marcelo Magalhães Fernandes | |||
Auditores Independentes | Engagement Partner |
2
SONAE SIERRA BRAZIL BV SARL AND SUBSIDIARIES
BALANCE SHEETS AS OF DECEMBER 31, 2013
(In thousands of Brazilian reais - R$)
Consolidated | Consolidated | |||||||||||||
Note | 12/31/13 | Note | 12/31/13 | |||||||||||
ASSETS |
LIABILITIES AND EQUITY |
|||||||||||||
CURRENT ASSETS |
CURRENT LIABILITIES |
|||||||||||||
Cash and cash equivalents |
4 | 429,347 | Loans and financing |
12 | 61,168 | |||||||||
Trade accounts receivable, net |
5 | 40,196 | Debentures |
13 | 14,903 | |||||||||
Recoverable taxes |
6 | 9,979 | Trade accounts payable |
49,812 | ||||||||||
Prepaid expenses |
29 | Taxes payable |
17 | 7,900 | ||||||||||
Other receivables |
5 | 6,959 | Personnel, payroll taxes, benefits and rewards |
10,520 | ||||||||||
|
|
|||||||||||||
Total current assets |
486,510 | Key money |
15 | 8,340 | ||||||||||
|
|
|||||||||||||
Dividends payable |
18 | 14,433 | ||||||||||||
NONCURRENT ASSETS |
Payables for purchase of asset |
14 | 21,186 | |||||||||||
Restricted investments |
30 | 6,124 | Other payables |
12,318 | ||||||||||
|
|
|||||||||||||
Trade accounts receivable, net |
5 | 14,059 | Total current liabilities |
200,580 | ||||||||||
|
|
|||||||||||||
Recoverable taxes |
6 | 18,472 | ||||||||||||
Loans to condominiums |
7 and 24 | 9,436 | NONCURRENT LIABILITIES |
|||||||||||
Deferred income tax and social contribution |
23 | 5,036 | Loans and financing |
12 | 510,495 | |||||||||
Escrow deposits |
16 | 11,677 | Debentures |
13 | 318,085 | |||||||||
Other receivables |
5 | 3,950 | Key money |
15 | 17,044 | |||||||||
Investment under equity-method |
8 | 33,375 | Payables for purchase of asset |
14 | 10,654 | |||||||||
Investment property |
10 | 3,946,171 | Deferred income tax and social contribution |
23 | 525,791 | |||||||||
Property and equipment |
9 | 3,163 | Reserve for civil, tax, labor and social security risks |
16 | 7,913 | |||||||||
Intangible assets |
11 | 5,662 | Accrual for variable compensation |
28 | 1,469 | |||||||||
|
|
|
|
|||||||||||
Total noncurrent assets |
4,057,125 | Total noncurrent liabilities |
1,391,451 | |||||||||||
|
|
|
|
|||||||||||
EQUITY |
18 | |||||||||||||
Capital |
48 | |||||||||||||
Share premium |
462,540 | |||||||||||||
Earnings reserves |
1,398,449 | |||||||||||||
|
|
|||||||||||||
Equity attributable to owners of the Company |
1,861,037 | |||||||||||||
Noncontrolling interests |
1,090,567 | |||||||||||||
|
|
|||||||||||||
Total equity |
2,951,604 | |||||||||||||
|
|
|
|
|||||||||||
TOTAL ASSETS |
4,543,635 | TOTAL LIABILITIES AND EQUITY |
4,543,635 | |||||||||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
3
SONAE SIERRA BRAZIL BV SARL AND SUBSIDIARIES
STATEMENTS OF INCOME
FOR THE PERIOD FROM JANUARY 1, 2014 THROUGH APRIL 27, 2014 (UNAUDITED) AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
(In thousands of Brazilian reais - R$)
Consolidated | ||||||||||||||
Note | PERIOD FROM 1/1/14 TO 4/27/14 (Unaudited) |
12/31/13 | 12/31/12 | |||||||||||
NET OPERATING REVENUE FROM RENTALS, SERVICES AND OTHER |
19 | 97,712 | 275,754 | 256,851 | ||||||||||
COST OF RENTALS AND SERVICES |
20 | (24,330 | ) | (58,715 | ) | (43,177 | ) | |||||||
|
|
|
|
|
|
|||||||||
GROSS PROFIT |
73,382 | 217,039 | 213,674 | |||||||||||
|
|
|
|
|
|
|||||||||
OPERATING INCOME (EXPENSES) |
||||||||||||||
General and administrative expenses |
20 | (9,209 | ) | (22,638 | ) | (20,394 | ) | |||||||
Other tax expenses |
(1,903 | ) | (4,834 | ) | (1,389 | ) | ||||||||
Equity pick-up |
8 | 1,003 | 7,945 | 4,821 | ||||||||||
Changes in fair value of investment property |
10 | | 344,318 | 193,586 | ||||||||||
Other operating income, net |
21 | 956 | 5,621 | 27,801 | ||||||||||
|
|
|
|
|
|
|||||||||
Total income from operations, net |
(9,153 | ) | 330,412 | 204,425 | ||||||||||
|
|
|
|
|
|
|||||||||
OPERATING INCOME BEFORE FINANCIAL INCOME (EXPENSES) |
64,229 | 547,451 | 418,099 | |||||||||||
FINANCIAL INCOME (EXPENSES), NET |
22 | (16,309 | ) | (27,620 | ) | (13,090 | ) | |||||||
|
|
|
|
|
|
|||||||||
INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION |
47,920 | 519,831 | 405,009 | |||||||||||
|
|
|
|
|
|
|||||||||
INCOME TAX AND SOCIAL CONTRIBUTION |
||||||||||||||
Current |
23 | (9,342 | ) | (32,748 | ) | (91,803 | ) | |||||||
Deferred |
23 | (1,902 | ) | (129,674 | ) | (8,754 | ) | |||||||
|
|
|
|
|
|
|||||||||
Total |
(11,244 | ) | (162,422 | ) | (100,557 | ) | ||||||||
|
|
|
|
|
|
|||||||||
NET INCOME FOR THE YEAR |
36,676 | 357,409 | 304,452 | |||||||||||
|
|
|
|
|
|
|||||||||
NET INCOME ATTRIBUTABLE TO |
||||||||||||||
Owners of the Company |
23,809 | 232,667 | 182,409 | |||||||||||
Noncontrolling interests |
12,867 | 124,742 | 122,043 | |||||||||||
BASIC EARNINGS PER SHARE |
18.4 | 129 | 1,264 | 991 | ||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
4
SONAE SIERRA BRAZIL BV SARL AND SUBSIDIARIES
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE PERIOD FROM JANUARY 1, 2014 THROUGH APRIL 27, 2014 (UNAUDITED) AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
(In thousands of Brazilian reais - R$)
Consolidated | ||||||||||||
PERIOD FROM 1/1/14 TO 4/27/14 (Unaudited) |
12/31/13 | 12/31/12 | ||||||||||
NET INCOME FOR THE YEAR |
36,676 | 357,409 | 304,452 | |||||||||
Other comprehensive income |
| | | |||||||||
|
|
|
|
|
|
|||||||
TOTAL COMPREHENSIVE INCOME |
36,676 | 357,409 | 304,452 | |||||||||
|
|
|
|
|
|
|||||||
NET INCOME ATTRIBUTABLE TO |
||||||||||||
Owners of the Company |
23,809 | 232,667 | 182,409 | |||||||||
Noncontrolling interests |
12,867 | 124,742 | 122,043 |
The accompanying notes are an integral part of these financial statements.
5
SONAE SIERRA BRAZIL BV SARL AND SUBSIDIARIES
STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
(In thousands of Brazilian reais - R$, except dividends per share)
Total equity attributable to |
||||||||||||||||||||||||||
Share | Retained | owners of the | Noncontrolling | Total | ||||||||||||||||||||||
Note | Capital | premium | earnings | parent | interests | equity | ||||||||||||||||||||
BALANCES AS OF DECEMBER 31, 2011 (UNAUDITED) |
48 | 467,524 | 1,056,438 | 1,524,010 | 904,156 | 2,428,166 | ||||||||||||||||||||
Share premium decrease |
18.2 | | (4,984 | ) | | (4,984 | ) | | (4,984 | ) | ||||||||||||||||
Net income for the year |
| | 182,409 | 182,409 | 122,043 | 304,452 | ||||||||||||||||||||
Dividends (R$170,896.74 per share) |
| | (31,445 | ) | (31,445 | ) | (12,415 | ) | (43,860 | ) | ||||||||||||||||
Dividends arising from operation of Fundo de Investimento Imobiliário Shopping Parque D. Pedro and Fundo de Investimento Parque D. Pedro Shopping Center |
| | | | (14,511 | ) | (14,511 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCES AS OF DECEMBER 31, 2012 |
48 | 462,540 | 1,207,402 | 1,669,990 | 999,273 | 2,669,263 | ||||||||||||||||||||
Net income for the year |
| | 232,667 | 232,667 | 124,742 | 357,409 | ||||||||||||||||||||
Dividends (R$226,192.93 per share) |
| | (41,620 | ) | (41,620 | ) | (11,596 | ) | (53,216 | ) | ||||||||||||||||
Dividends arising from operation of Fundo de Investimento Imobiliário Shopping Parque D. Pedro and Fundo de Investimento Parque D. Pedro Shopping Center |
| | | | (21,852 | ) | (21,852 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCES AS OF DECEMBER 31, 2013 |
48 | 462,540 | 1,398,449 | 1,861,037 | 1,090,567 | 2,951,604 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
6
SONAE SIERRA BRAZIL BV SARL AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 2014 THROUGH APRIL 27, 2014 (UNAUDITED) AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
(In thousands of Brazilian reais - R$)
Consolidated | ||||||||||||
PERIOD FROM 1/1/14 TO 4/27/14 (Unaudited) |
12/31/2013 | 12/31/2012 | ||||||||||
CASH FLOW FROM OPERATING ACTIVITIES |
||||||||||||
Net income for the year |
36,676 | 357,409 | 304,452 | |||||||||
Adjustments to reconcile net income for the year to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
845 | 2,330 | 1,790 | |||||||||
Residual value of property and equipment written-off |
84 | 573 | 362 | |||||||||
Gain by debentures adjustment in fair value hedge accounting |
(581 | ) | (1,982 | ) | | |||||||
Loss with derivatives transaction in fair value hedge accounting |
1,395 | 1,828 | | |||||||||
Unbilled revenue from rentals |
(2,264 | ) | (1,950 | ) | (2,550 | ) | ||||||
Allowance for doubtful accounts receivable |
2,560 | 2,792 | 2,401 | |||||||||
Provision for (reversal of) civil, tax, labor and social security risks |
396 | (1,526 | ) | (846 | ) | |||||||
Accrual for variable compensation |
495 | 2,012 | 1,928 | |||||||||
Deferred income tax and social contribution |
1,902 | 129,674 | 8,754 | |||||||||
Income tax and social contribution |
9,342 | 32,748 | 91,803 | |||||||||
Interest on loans and financing |
26,025 | 74,928 | 61,223 | |||||||||
Transaction (gains) losses on foreign exchange |
895 | (2,875 | ) | 1,461 | ||||||||
Changes in fair value of investment property |
| (344,318 | ) | (193,586 | ) | |||||||
Gain on sale of investment property |
| | (30,578 | ) | ||||||||
Equity pick-up |
(1,003 | ) | (7,945 | ) | (4,821 | ) | ||||||
(Increase) decrease in operating assets: |
||||||||||||
Trade accounts receivable, net |
6,599 | (9,277 | ) | (10,166 | ) | |||||||
Loans to condominiums |
(5,586 | ) | (7,995 | ) | (1,113 | ) | ||||||
Recoverable taxes |
(4,412 | ) | (3,742 | ) | 309 | |||||||
Prepaid expenses |
(106 | ) | 24 | 452 | ||||||||
Escrow deposits |
(164 | ) | (1,727 | ) | (6,221 | ) | ||||||
Other receivables |
(4,490 | ) | (5,382 | ) | 282 | |||||||
Increase (decrease) in operating liabilities: |
||||||||||||
Trade accounts payable |
(9,563 | ) | (10,008 | ) | 6,777 | |||||||
Taxes payable |
(8,132 | ) | (14,392 | ) | (19,202 | ) | ||||||
Personnel, payroll taxes, benefits and rewards |
(2,202 | ) | (978 | ) | 442 | |||||||
Key money |
(1,124 | ) | (5,580 | ) | 4,938 | |||||||
Other payables |
(4,867 | ) | (3,799 | ) | 6,452 | |||||||
|
|
|
|
|
|
|||||||
Cash provided by operating activities |
42,720 | 180,842 | 224,743 | |||||||||
Interest paid |
(29,408 | ) | (61,136 | ) | (34,414 | ) | ||||||
Income tax and social contribution paid |
(4,403 | ) | (76,344 | ) | (16,837 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
8,909 | 43,362 | 173,492 | |||||||||
|
|
|
|
|
|
|||||||
CASH FLOW FROM INVESTING ACTIVITIES |
||||||||||||
Restricted investments |
(531 | ) | (2,059 | ) | (1,894 | ) | ||||||
Acquisition or construction of investment property |
(18,426 | ) | (341,735 | ) | (394,498 | ) | ||||||
Purchase of property and equipment |
(820 | ) | (4,014 | ) | (1,167 | ) | ||||||
Increase in intangible assets |
(1 | ) | (634 | ) | (511 | ) | ||||||
Proceeds from sale of investment property |
| | 238,696 | |||||||||
Dividends received |
920 | 3,100 | 2,448 | |||||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(18,858 | ) | (345,342 | ) | (156,926 | ) | ||||||
|
|
|
|
|
|
|||||||
CASH FLOW FROM FINANCING ACTIVITIES |
||||||||||||
Share premium decrease |
| | (4,964 | ) | ||||||||
Debentures |
| | 300,000 | |||||||||
Debentures issuance costs |
| | (6,834 | ) | ||||||||
Payments of asset financed |
(6,088 | ) | (18,264 | ) | (18,040 | ) | ||||||
Proceeds from loans and financing |
5,000 | 169,825 | 78,984 | |||||||||
Loans repaid - principal |
(9,917 | ) | (38,161 | ) | (11,579 | ) | ||||||
Distributed earnings of real estate funds - noncontrolling interests |
(7,096 | ) | (21,852 | ) | (22,672 | ) | ||||||
Dividends paid |
(8,797 | ) | (50,540 | ) | (39,601 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash provided by financing activities |
(26,898 | ) | 41,008 | 275,294 | ||||||||
Effect of exchange rate changes on cash and cash equivalents |
(895 | ) | 2,875 | (1,830 | ) | |||||||
|
|
|
|
|
|
|||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS, NET |
(37,742 | ) | (258,097 | ) | 290,030 | |||||||
|
|
|
|
|
|
|||||||
CASH AND CASH EQUIVALENTS |
||||||||||||
Cash and cash equivalents at April 27, 2014 |
391,605 | 429,347 | 687,444 | |||||||||
Cash and cash equivalents at beginning of year |
429,347 | 687,444 | 397,414 | |||||||||
|
|
|
|
|
|
|||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS, NET |
(37,742 | ) | (258,097 | ) | 290,030 | |||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
7
Sonae Sierra Brazil BV SARL and Subsidiaries
SONAE SIERRA BRAZIL BV SARL AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 2014 THROUGH APRIL 27, 2014 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
1. | GENERAL INFORMATION |
Sonae Sierra Brazil BV SARL (the Company) was incorporated under the laws of the Netherlands on January 22, 2001 as a limited liability company. On November 30, 2004, the principal establishment and effective place of the Companys management was transferred from the Netherlands to the Grand Duchy of Luxembourg. The registered office of the Company is at 46A, Avenue John F. Kennedy, L.1855, Luxembourg. The principal business activities of the Company are holding, finance and real estate activities, particularly with respect to the development, exploitation and management of shopping malls.
As of December 31, 2013 and 2012, the Company was 50% owned by Sierra Investments Holding BV, 10.33% owned by DDR Luxembourg SARL and 39.67% owned by DDR Luxembourg II SARL. The Companys ultimate parent companies were Sonae Sierra SGPS S.A., headquartered in Portugal, and DDR Corp., headquartered in the United States of America.
On April 27, 2014 (unaudited), DDR Corp., the ultimate controlling shareholder of DDR Luxembourg SARL and DDR Luxembourg II SARL, sold all of its shares owned, representing 50% of the corporate capital of the Company to Mr. Alexander Otto and certain of his affiliates. Sierra Investments Holdings B.V. did not exercise its right of first refusal to acquire DDR Luxembourg SARL and DDR Luxembourg II SARLs interest in Sonae Sierra Brazil BV SARL. As a result of this sale, as of April 27, 2014 (unaudited), the Company is 50% owned by Sierra Investments Holding BV, 10.33% owned by Cura Beteiligungs gesellschaft Brasilien M.B.H., 13.64% owned by Arosa Vermögensverwaltungs gesellschaft M.B.H. and 26.63% owned by Alexander Otto.
Group companies
The Companys direct and indirect subsidiaries included in the consolidated financial statements are the following:
a) | Sierra Brazil 1 BV - headquartered in the Netherlands, is primarily engaged in holding equity interest in other companies and/or real estate investment funds, directly or indirectly through subsidiaries and associates. As of April 27, 2014, Sierra Brazil 1 BV holds 66.65% of the undivided interest in Sonae Sierra Brasil S.A. |
b) | Sonae Sierra Brasil S.A. - established on June 18, 2003, is primarily engaged in: (i) planning, developing, implementing and investing in real estate, namely shopping malls and related activities, as developer, builder, lessor and advisor; (ii) operating and managing owned and/or third-party properties and stores and providing related services; and (iii) holding equity interest in other companies and/or real estate investment funds, directly or indirectly through subsidiaries and associates. Sonae Sierra Brasil S.A. trades its shares on BM&FBOVESPA (São Paulo Stock Exchange), under the ticker symbol SSBR3. As of April 27, 2014, Sonae Sierra Brasil S.A. holds 100.00% of the undivided interest in Sierra Investimentos Brasil Ltda. and Unishopping Consultoria Ltda. |
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Sonae Sierra Brazil BV SARL and Subsidiaries
c) | Parque D. Pedro 1 BV SARL is primarily engaged in holding equity interest in real estate investment funds, directly or indirectly through subsidiaries. As of April 27, 2014, Parque D. Pedro 1 BV SARL holds 27.61% and 7.97% of the undivided interest in Fundo de Investimento Imobiliário Shopping Parque D. Pedro and Fundo de Investimento Imobiliário - FII Parque Dom Pedro Shopping Center, respectively. |
d) | Fundo de Investimento Imobiliário Shopping Parque D. Pedro (Fundo de Investimento Imobiliário I) is engaged in holding long-term investment properties, to earn income by renting and leasing properties of its real estate assets. As of April 27, 2014, Fundo de Investimento Imobiliário I holds a trust equivalent to 85% of the undivided interest in Shopping Parque D. Pedro. |
e) | Fundo de Investimento Imobiliário - FII Parque Dom Pedro Shopping Center (Fundo de Investimento Imobiliário II) is engaged in holding long-term investment properties to earn income by renting and leasing properties of its real estate assets. Established on June 30, 2009, through the partial spin-off of Fundo de Investimento Imobiliário Is operations, Fundo de Investimento Imobiliário II holds a trust equivalent to 15% of the undivided interest in Shopping Parque D. Pedro. As of April 27, 2014, Fundo de Investimento Imobiliário II holds 17.72% of Fundo de Investimento Imobiliário I. |
f) | Sierra Investimentos Brasil Ltda. (Sierra Investimentos) is primarily engaged in: (i) planning, developing, implementing and investing in real estate, namely shopping malls and related activities, as developer, builder, lessor and advisor; (ii) operating and managing properties and stores and providing related services; and (iii) holding equity interest in other companies. As of April 27, 2014, Sierra Investimentos holds 42.28% and 50.1% of the undivided interest in Fundo de Investimento Imobiliário I and Fundo de Investimento Imobiliário II, respectively. As of April 27, 2014, this company is the parent company of Pátio Boavista Shopping Ltda. (Pátio Boavista), Patio São Paulo Shopping Ltda. (Pátio São Paulo), Pátio São Bernardo Shopping Ltda. (Pátio São Bernardo), Pátio Sertório Shopping Ltda. (Pátio Sertório), Pátio Uberlândia Shopping Ltda. (Pátio Uberlândia), Pátio Londrina Empreendimentos e Participações Ltda. (Pátio Londrina), Pátio Goiânia Shopping Ltda. (Pátio Goiânia) and Pátio Campinas Shopping Ltda. (Pátio Campinas). |
Pátio Boavista, Pátio São Paulo, Pátio São Bernardo, Pátio Sertório, Pátio Uberlândia, Pátio Londrina, Pátio Goiânia and Pátio Campinas, which are all primarily engaged in investing in real estate, namely shopping malls and related activities.
g) | Unishopping Consultoria Imobiliária Ltda. (Unishopping Consultoria) is engaged in planning, installing, developing and managing shopping malls, leasing, operating and managing car park areas, managing properties and related services and is responsible for selling development stores in which the group holds interests. |
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Sonae Sierra Brazil BV SARL and Subsidiaries
As of April 27, 2014 (unaudited) and as of December 31, 2013 and 2012, the Companys subsidiaries and associates held the following interests in shopping malls:
Undivided interest - % | ||||||||||||||
Developer |
Shopping mall |
4/27/14 | 12/31/13 | 12/31/12 | ||||||||||
Fundo de Investimento Imobiliário I |
Shopping Parque D. Pedro | 85.00 | 85.00 | 85.00 | ||||||||||
Fundo de Investimento Imobiliário II |
Shopping Parque D. Pedro | 15.00 | 15.00 | 15.00 | ||||||||||
Pátio Penha (i) |
Shopping Plaza Sul | | | 30.00 | ||||||||||
Pátio Londrina |
Shopping Plaza Sul | 30.00 | 30.00 | | ||||||||||
Pátio São Bernardo |
Shopping Plaza Sul | 30.00 | 30.00 | 30.00 | ||||||||||
Pátio Boavista |
Shopping Center Metrópole | 100.00 | 100.00 | 100.00 | ||||||||||
Pátio Boavista (i) |
Boavista Shopping | | | 100.00 | ||||||||||
Pátio Campinas |
Boavista Shopping | 100.00 | 100.00 | | ||||||||||
Sierra Enplanta (i) |
Franca Shopping | | | 76.92 | ||||||||||
Pátio Uberlândia |
Franca Shopping | 76.92 | 76.92 | | ||||||||||
Pátio Sertório |
Shopping Manauara | 100.00 | 100.00 | 100.00 | ||||||||||
Pátio Uberlândia |
Uberlândia Shopping | 100.00 | 100.00 | 100.00 | ||||||||||
Pátio Londrina |
Boulevard Londrina (ii) | 88.64 | 88.64 | 84.48 | ||||||||||
Pátio Goiânia |
Passeio das Águas Shopping (iii) | 100.00 | 100.00 | 100.00 | ||||||||||
Campo Limpo Empreendimentos e Participações Ltda. |
Shopping Campo Limpo | 20.00 | 20.00 | 20.00 |
(i) | These subsidiaries were merged and/or spun-off on November 2, 2013, without impact to the consolidated structure. |
(ii) | Opened on May 3, 2013. |
(iii) | Opened on October 30, 2013. |
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Sonae Sierra Brazil BV SARL and Subsidiaries
2. | SIGNIFICANT ACCOUNTING POLICIES |
2.1. | Declaration of conformity |
The Companys financial statements comprise:
| The consolidated financial statements, in accordance with International Financial Reporting Standards - IFRS, as issued by the International Accounting Standards Board - IASB, as applicable to the items included in these consolidated financial statements, have been prepared to fulfill the requirement of Rule 3-09 of Regulation S-X of its shareholder DDR Corp., to be included in its Form 10-K. The Company applied the accounting policies set out in note 2 for all periods presented. As a result of the sale by DDR Corp., the accompanying consolidated financial statements and notes thereto present separately the results of operations of DDR Corp.s ownership period (January 1, 2014 to April 27, 2014 (unaudited) (the 2014 Stub Period), and for the years ended December 31, 2013 and December 31, 2012). |
2.2. | Basis of preparation |
The financial statements have been prepared based on the historical cost and adjusted to reflect the fair values of the investment properties and certain financial instruments against net income for the year. The historical cost is generally based on the fair value of the consideration paid in exchange for assets.
The main accounting policies adopted in preparing these financial statements are summarized below. These practices are consistent with those adopted in the prior year reporting period.
The following is a summary of the significant accounting policies adopted by the group:
2.3. | Investments in associate |
The investments are registered under the equity method.
Associates are entities that the Company is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but not have control or joint control over those policies (see note 8).
2.4. | Basis of consolidation |
The consolidated financial statements have been prepared and are presented in conformity with IFRS, as issued by IASB. The main accounting policies applied include the financial statements of the Company and of its subsidiaries. Intercompany balances and the Companys investments in subsidiaries have been eliminated in consolidation. Non-controlling interests are stated separately.
Control is achieved when the Company:
| Has power over the investee; |
| Is exposed, or has rights, to variable returns from its involvement with the investee. |
| Has the ability to use its power to affect its returns. |
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Sonae Sierra Brazil BV SARL and Subsidiaries
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.
As of April 27, 2014 and as of December 31, 2013 and 2012, the consolidated companies are as follows:
Equity interest - % | ||||||||||||
4/27/14 | 12/31/13 | 12/31/12 | ||||||||||
Direct subsidiaries: |
||||||||||||
Parque D. Pedro 1 BV SARL |
100.00 | 100.00 | 100.00 | |||||||||
Sierra Brazil 1 BV |
100.00 | 100.00 | 100.00 | |||||||||
Indirect subsidiaries: |
||||||||||||
Sonae Sierra Brasil S.A. |
66.65 | 66.65 | 66.65 | |||||||||
Sierra Investimentos Brasil Ltda. |
66.65 | 66.65 | 66.65 | |||||||||
Unishopping Administradora Ltda. (a) |
| | 66.65 | |||||||||
Unishopping Consultoria Imobiliária Ltda. |
66.65 | 66.65 | 66.65 | |||||||||
Fundo de Investimento Imobiliário I (b) |
63.12 | 63.12 | 63.12 | |||||||||
Fundo de Investimento Imobiliário II |
41.36 | 41.36 | 41.36 | |||||||||
Sierra Enplanta Ltda. (a) |
| | 66.65 | |||||||||
Pátio Boavista Shopping Ltda. |
66.65 | 66.65 | 66.65 | |||||||||
Pátio Penha Shopping Ltda. (a) |
| | 66.65 | |||||||||
Pátio São Bernardo Shopping Ltda. |
66.65 | 66.65 | 66.65 | |||||||||
Pátio Sertório Shopping Ltda. |
66.65 | 66.65 | 66.65 | |||||||||
Pátio Uberlândia Shopping Ltda. |
66.65 | 66.65 | 66.65 | |||||||||
Pátio Londrina Empreendimentos e Participações Ltda. |
66.65 | 66.65 | 66.65 | |||||||||
Pátio Goiânia Shopping Ltda. |
66.65 | 66.65 | 66.65 | |||||||||
Pátio Campinas Shopping Ltda. (c) |
66.65 | 66.65 | | |||||||||
Pátio São Paulo Shopping Ltda. |
66.65 | 66.65 | | |||||||||
Unconsolidated associate - through Sierra Investimentos Brasil Ltda.- |
||||||||||||
Campo Limpo Empreendimentos e Participações Ltda. |
20.00 | 20.00 | 20.00 |
(a) | Subsidiaries merged in the corporate restructuring process. |
(b) | Considering that Fundos the Investimento Imobiliário I and II held 85% and 15%, respectively, of Shopping Parque D. Pedro and that the Company held an indirect investment in Sonae Sierra Brasil of 66.65, the Company held 59.87% of this property on a combined basis as of April 27, 2014, December 31, 2013 and 2012. |
(c) | Part of the net assets of indirect subsidiary Pátio Boavista was merged into Pátio Campinas on November 2, 2013. |
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Sonae Sierra Brazil BV SARL and Subsidiaries
2.5. | Segment reporting |
Segment reporting is consistent with the internal report provided to the chief operating decision maker.
2.6. | Functional currency of the financial statements |
The items included in the financial statements of each entity are measured using the currency of the primary economic environment in which the entity operates (functional currency). The Company and its subsidiaries functional and presentation currency is the Brazilian reais (R$).
2.7. | Foreign currency |
In preparing the financial statements of the individual entities, transactions in foreign currency are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items are recognized in profit or loss in the period in which they arise.
2.8. | Cash and cash equivalents |
Cash and cash equivalents are represented by available bank accounts. Short-term investments may be redeemed within 90 days and are comprised of highly-liquid securities convertible into cash, which presents an immaterial risk of change in fair value. Short-term investment balances are carried at cost plus income earned through the end of each reporting period.
2.9. | Restricted investments |
As of April 27, 2014 and as of December 31, 2013 and 2012, the indirect subsidiary, Sierra Investimentos had investments in Financial Treasury Bills (LFTs) linked to commitments assumed with Banco Ourinvest S.A., as described in note 30. Investment balances were carried at cost plus income earned through the end of each reporting period.
2.10. | Financial instruments |
2.10.1. | Recognition and measurement |
Transactions with financial instruments are initially recognized at transaction value.
Transaction costs directly attributable to the acquisition or issuance of financial assets and financial liabilities are added to or deducted from the financial assets and financial liabilities.
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Sonae Sierra Brazil BV SARL and Subsidiaries
2.10.2. | Classification |
The Company and its subsidiaries financial instruments have been classified into the following categories:
| Measured at fair value through profit or loss: financial assets and financial liabilities held for trading, i.e., acquired or originated primarily for the purpose of sale or repurchase in the short term. Changes in fair value are accounted for in profit or loss, and balances are stated at fair value. |
| Loans and receivables: non-derivative financial instruments with fixed or determinable payments that are not quoted in an active market. The loans and receivables are classified as current assets, except for maturities greater than 12 months after the end of the reporting period, which are classified as noncurrent assets. The Companys loans and receivables include loans to associates and subsidiaries and trade and other receivables. |
2.11. | Derivatives |
Derivatives are initially recognized at fair value at the trade date and subsequently re-measured at fair value at the end of the reporting period. The resulting gain or loss is recognized in profit or loss immediately, unless the derivative is designated and effective as a hedging instrument; in which the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
2.12. | Hedge accounting |
The Company designates certain hedging instruments as fair value hedges.
At the beginning of the hedging relationship, the Company documents the relationship between the hedging instrument and the hedged item with its risk management objectives and strategy to enter into different hedging transactions. Additionally, the Company documents at the inception of a hedge, and continuously, if the hedging instrument used in a hedging relationship is highly effective in offsetting the exposure to changes in the hedged items fair values or cash flows attributable to the hedged risk.
Fair value hedges
Changes in the fair value of derivatives designated and qualified as fair value hedges are recorded in profit or loss together with any changes in the fair values of the hedged item, attributable to the hedged risk. Changes in the fair value of these instruments, as well as of the hedged item, are recognized in Finance income (costs).
Hedge accounting is discontinued prospectively when the Company cancels the hedging relationship, when the hedging instrument expires, is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. The adjustment to the fair value of the hedged item is accounted for in profit or loss, as of the adjustment date.
2.13. | Impairment of financial assets |
Financial assets, except those designated at fair value through profit or loss, are valued using impairment indicators at the end of each annual reporting period. Impairment losses are recognized if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, with an impact on the estimated future cash flows.
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Sonae Sierra Brazil BV SARL and Subsidiaries
The criteria used by the Company and its subsidiaries to determine if there is objective evidence that a financial asset is impaired includes:
| Significant financial difficulty of the issuer or debtor |
| A breach of contract, such as default or delinquency in interest or principal payments |
| It is probable that the borrower will enter bankruptcy or other financial reorganization |
| The disappearance of an active market for the financial asset because of financial difficulties |
The carrying amount of the financial asset is directly reduced by any impairment loss for all financial assets, except for receivables, in which the carrying amount is reduced through use of an allowance account. Subsequent recoveries of previously written-off amounts are added to the allowance. Changes in the carrying amount of the allowance account are recognized in profit or loss.
2.14. | Trade accounts receivable |
Rental revenue is recognized on a straight-line basis, according to contractual terms.
An allowance for doubtful accounts is recorded in an amount considered sufficient by management to cover probable losses on the realization of trade accounts receivable, (100% of amounts over 120 days past due).
Past-due and renegotiated amounts are recorded at the renegotiation amounts, including principal plus financial charges, to be collected according to the new receiving period. Concurrently, an additional allowance is recorded on financial charges incurred and included in renegotiations. The allowance is registered until the payment of the renegotiated balance.
2.15. | Property and equipment |
Property and equipment is carried at cost of purchase, less accumulated depreciation. Depreciation is calculated on a straight-line basis at the rates mentioned in note 9, based on the estimated useful lives of the assets.
The residual values and the useful lives of the assets are annually reviewed and adjusted, when appropriate.
The carrying amount of property and equipment is derecognized on disposal or when no future economic benefits are expected from its use. The gain or loss arising on the recognition of property and equipment corresponds to the difference between the amounts received and the carrying amount of the asset and is recognized in profit or loss.
2.16. | Investment property |
Investment properties are represented by land and buildings in shopping malls held to earn rentals and/or for capital appreciation, as disclosed in note 10.
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Sonae Sierra Brazil BV SARL and Subsidiaries
Investment properties are measured initially at their cost, including transaction costs. After initial recognition, investment properties are measured at fair value. The gain or loss from the change in fair value of investment properties in operation is recognized in profit or loss for the period in which it arises. Valuations were made by independent external appraisers using the cash flow model discounted at market rates. Semi-annually reviews are conducted to value any changes in the recognized balances.
Investment property under construction is recognized at cost of construction until it is placed into service or when the Company is able to measure, reliably, the fair value of the asset.
The fair value of an investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect the related future benefits from this future expenditure.
2.17. | Intangible assets |
Intangible assets acquired separately with finite useful lives are carried at cost less accumulated amortization and impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.
2.18. | Impairment of tangible and intangible assets excluding goodwill |
Items in property and equipment, intangible assets and other noncurrent assets are evaluated annually to identify evidence of unrecoverable losses or whenever significant events or material changes in circumstances indicate that the carrying value is not recoverable. In the event of a loss resulting from situations where the carrying amount of an asset exceeds its recoverable value, which is defined as the value in use of the asset, using the discounted cash flow method, an impairment loss is recognized in profit or loss.
2.19. | Loans, financing and debentures |
Loans, financing and debentures are initially recognized at fair value, less transaction costs incurred, and subsequently stated at amortized cost. Any difference between the amounts raised (less transaction costs) and the settlement amount is recognized in the statement of income during the period the borrowings remain outstanding, using the effective interest rate method.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, that take substantial period to get ready for their intended use or sale, are capitalized as part of the cost of such assets through the date they are ready for their intended use or sale. Other borrowing costs are recognized in profit or loss for the period in which they are incurred.
Part of the transactions carried out using debentures issued by the Company, subject to fair value hedge, are stated at fair value. Gains and losses are recognized through profit or loss.
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Sonae Sierra Brazil BV SARL and Subsidiaries
2.20. | Provisions |
Provisions are recognized when there is a present obligation (legal or constructive) as a result of a past event, when a reliable estimate can be made of the amount of the obligation and its settlement is probable.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.
As of December 31, 2013, the main provisions recognized by the Company and subsidiaries are as follows:
2.20.1 | Reserve for civil, tax, labor and social security risks |
Reserves recorded for lawsuits assessed by the legal counsel and management of the Company and its subsidiaries as probable losses, considering the nature of the lawsuits, the legal counsel and managements experience in similar cases. Reserves have been recognized for matters classified as legal obligations, regardless of the expected outcome of lawsuits.
2.20.2 | Accrual for variable compensation |
Accrual for variable compensation is recognized to cover the amounts of performance bonuses granted to some Company officers, which will only be paid three years after such bonuses are granted, provided the officers are still employees of the Company or its subsidiaries. These bonuses are adjusted through the payment date, based on the annual fluctuation of the Companys market value, and are recognized on a straight-line basis in the income of period during the three-year period (from grant date to payment year), at the gross amount granted to these officers. A possible subsequent adjustment arising from changes in market value is recorded in the income of the period, when incurred.
2.21. | Revenue recognition |
Revenue, costs and expenses are recognized on the accrual basis. Revenue from rentals is recognized on a straight-line basis over the term of rental agreements, pursuant to IAS 17 (Leases revenues, taking into account the contractual adjustment and the collection of the 13th monthly rental and revenue from services, is recognized when services are provided). Revenues from assignment of rights to tenants are allocated to income over the term of the first rental agreement.
Our revenue derives mainly from the following activities:
a) | Rental |
Rental revenue refers to the rental of store space to tenants and other commercial space, such as sales stands, including rentals of commercial space for advertising and promotion. Rentals to shopping mall tenants account for the highest percentage of Company and its subsidiaries revenue.
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Sonae Sierra Brazil BV SARL and Subsidiaries
b) | Parking |
Parking revenue refers to revenue from the operation of parking lots.
c) | Services |
Service revenue refers to the provision of asset and property management services to shopping mall tenants and owners and brokerage services.
The Company receives management fees from tenants for the management of the shopping mall common areas.
Brokerage services include the sale of vacant spaces and the identification and development of relationships with prospect tenants, such as store chains to minimize a shopping mall vacancy rate. Management fees are calculated as a percentage of the rent charged from a potential lessee.
d) | Property space (key money) lease fee |
Key money refer to the lease fees payable by new tenants as consideration for the advantages and benefits received by the tenants from their right to use the infrastructure offered by the shopping malls when new projects are launched, existing projects are expanded or the store rental is discontinued.
The amount payable by new tenants is negotiated based on the market value of the rented space. Usually the new tenants pay a higher fee for stores with greater visibility and exposure in the busiest areas of the shopping mall.
e) | Lessee transfer fees |
Revenue generated by the fees paid when the rental is transferred from a lessee to another, generally calculated as a percentage of the amount involved in the transfer.
2.22. | Income tax and social contribution |
The operations related to the development, management and investment of shopping malls are located only in Brazil.
a) | Subsidiary Sonae Sierra Brasil S.A. and its subsidiaries located in Brazil |
Income tax is calculated at the rate of 15% plus a 10% surtax on annual taxable income exceeding R$240. Social contribution is calculated at the rate of 9% on annual taxable income. Deferred income tax and social contribution result from temporary differences in the recognition of income and expenses (for tax and financial reporting purposes), as well as tax loss carryforwards, when the utilization against future taxable income is probable.
As permitted by tax legislation, certain consolidated subsidiaries opted for taxation based on deemed income. Tax basis of income tax and social contribution are calculated at the rate of 32% on gross revenues from services and 100% of financial income, of which regular tax rates of 15%, plus a 10% surtax for income tax and 9% for social contribution are applied. As a result, these consolidated companies did not
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Sonae Sierra Brazil BV SARL and Subsidiaries
record deferred income tax and social contribution on tax loss carryforwards and temporary differences and are not subject to the noncumulative regime for taxes on revenue (Social Integration Program Tax on Revenue (PIS) and Social Security Funding Tax on Revenue (COFINS)).
Shareholders of Fundos de Investimento Imobiliário I and II are subject to tax on income from the fund.
In the specific case of the adjustment to fair value of investment property, regardless of the taxation regime elected by the subsidiaries and associates, deferred tax liabilities were recognized at the rate of 34% on such adjustments (except for the property under Fundos de Investimento Imobiliário I and II, which is tax exempt), based on the assumption that these properties can be sold and a capital gain can be determined.
b) | Company |
Current taxes
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of income because of items of income or expense items that are taxable or deductible in other years and items that are never taxable or deductible. The Companys liability for current tax is calculated using a tax rate of 15%, which has been enacted or substantively enacted by the end of the reporting period.
Deferred taxes
For the adjustment to fair value of investment property related to Fundos de Investimento Imobiliário I and II, regardless of the taxation regime elected by the subsidiaries and associates, deferred tax liabilities were recognized at the rate of 15% on such adjustments, based on the assumption that these properties can be sold and a capital gain can be determined.
2.23. | Earnings per share |
Basic and diluted earnings per share are calculated using net income for the year attributable to the owners of the Company and the weighted average number of shares outstanding in the year.
The Company has no debt convertible into shares, stock options granted or any other potentially dilutive instrument; therefore, diluted earnings per share is equal to basic earnings per share for the periods shown.
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Sonae Sierra Brazil BV SARL and Subsidiaries
2.24. | New and revised standards and interpretations in 2014 |
Pronouncement |
Description | |
IFRS 10 |
Consolidated Financial Statements | |
IFRS 12 |
Disclosure of Interests in Other Entities | |
IAS 27 |
Separate Financial Statements | |
IAS 32 |
Financial Instruments: Disclosures | |
IAS 36 |
Impairment of Assets | |
IAS 39 |
Financial Instruments: Recognition and Measurement | |
IFRIC 21 |
Levies |
The Companys management assessed these new standards and interpretations and concluded that there was no impact from adopting these new standards.
3. | CRITICAL ACCOUNTING JUDGMENTS AND MAIN ESTIMATES |
In the application of the Companys accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised.
The following are the main judgments and accounting estimates that the Company and its subsidiaries management understands as relevant for the preparation of the individual and consolidated financial statements:
a) | Investment property value: the fair value of investment property is determined by valuing the future cash flows of each property at present value, as determined by independent valuers. The Company and its subsidiaries management uses its judgment to choose the method and define assumptions, which are mainly based on market conditions existing at the end of the reporting period. |
b) | Reserve for civil, tax, labor and social security risks: the reserve for risks is recognized for lawsuits assessed by the legal counsel and management of the Company and its subsidiaries as probable losses, considering the nature of the lawsuits, and the legal counsel and managements experience in similar cases. Reserves have been recognized for matters classified as legal obligations, regardless of the expected final outcome of lawsuits. |
c) | Projections prepared for the realization of deferred income tax and social contribution balances: based on analyses of the multi-year operating projections, the Company recognized tax credits related to prior year tax loss carryforwards and temporary differences. |
Maintenance of tax credits from tax loss carryforwards, deferred income tax and social contribution tax loss carryforwards is supported by future earnings projections prepared by the Companys management and periodically reviewed, for the next ten years, to determine the recoverability of tax loss carryforwards and temporary differences.
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Sonae Sierra Brazil BV SARL and Subsidiaries
4. | CASH AND CASH EQUIVALENTS |
Consolidated | ||||
12/31/13 | ||||
Cash |
75 | |||
Banks |
3,507 | |||
Short-term investments (a) |
422,795 | |||
Interest bearing account (b) |
2,970 | |||
|
|
|||
Total |
429,347 | |||
|
|
(a) | As of December 31, 2013, short-term investments are highly liquid and earn yield at a weighted average interest rate of 102.9% of the interbank deposit rate (CDI). |
(b) | Interest bearing account indexed to euros - and earns yield at a weighted average interest rate of 0.85% per year. |
5. | TRADE ACCOUNTS RECEIVABLE, NET AND OTHER RECEIVABLES |
Trade accounts receivable, net
Consolidated | ||||
12/31/13 | ||||
Rentals |
49,613 | |||
Assignment of rights receivable (a) |
1,298 | |||
|
|
|||
Total trade receivables billed |
50,911 | |||
Unbilled revenue from rentals (b) |
14,059 | |||
|
|
|||
Total trade receivables billed and unbilled |
64,970 | |||
Allowance for doubtful accounts |
(10,715 | ) | ||
|
|
|||
Total |
54,255 | |||
|
|
|||
Current |
(40,196 | ) | ||
|
|
|||
Noncurrent |
14,059 | |||
|
|
(a) | Represents receivables from the leasing of commercial spaces in shopping malls, also known as Key Money. |
(b) | Represents the effect of unbilled revenue from rentals recognized on a straight-line basis according to agreement terms. |
21
Sonae Sierra Brazil BV SARL and Subsidiaries
The aging list of trade accounts receivable billed as of December 31, 2013 is as follows:
Consolidated | ||||
12/31/13 | ||||
Current |
39,013 | |||
|
|
|||
Past due: |
||||
Up to 30 days |
2,067 | |||
31 to 60 days |
978 | |||
61 to 90 days |
903 | |||
91 to 180 days |
2,423 | |||
Over 180 days |
5,527 | |||
|
|
|||
Subtotal |
11,898 | |||
|
|
|||
Total |
50,911 | |||
|
|
Allowance for doubtful accounts
Change in allowance for doubtful accounts is as follows:
Consolidated | ||||
Balance as of December 31, 2011 (unaudited) |
(9,727 | ) | ||
Write-offs arising from uncollectible receivables |
417 | |||
Write-offs upon the sale of interests in the malls Tivoli, Penha and Pátio Brasil |
2,367 | |||
Allowances recognized in the year |
(2,401 | ) | ||
|
|
|||
Balance as of December 31, 2012 |
(9,344 | ) | ||
Write-offs arising from uncollectible receivables |
1,421 | |||
Allowances recognized in the year |
(2,792 | ) | ||
|
|
|||
Balance as of December 31, 2013 |
(10,715 | ) | ||
|
|
Other receivables
Additionally, the balance of Other receivables is broken down as follows:
Consolidated | ||||
12/31/13 | ||||
Receivables of Banco Ourinvest S.A. (a) |
833 | |||
Loan agreements with storeowners (b) |
3,117 | |||
Other receivables from condominiums |
3,846 | |||
Receivables from parking operations |
1,315 | |||
Vacations, 13th salaries, and other advances to employees |
98 | |||
Other |
1,700 | |||
|
|
|||
Total |
10,909 | |||
|
|
|||
Current |
(6,959 | ) | ||
|
|
|||
Noncurrent |
3,950 | |||
|
|
(a) | As of December 31, 2013, the subsidiary Sierra Investimentos has R$833 in receivables from Banco Ourinvest S.A., as a result from the commitment entered into on October 29, 2009 (see note 30). |
(b) | Refers to loans agreements entered into among Companys subsidiaries and shopping storeowners. These agreements are subject to financial charges corresponding to the annual fluctuation of the Amplified Consumer Price Index - IPCA, and mature within up to 60 months. |
22
Sonae Sierra Brazil BV SARL and Subsidiaries
6. | RECOVERABLE TAXES |
Consolidated | ||||
12/31/13 | ||||
Withholding income tax (IRRF) |
27,774 | |||
Social contribution - Law 10833/03 |
369 | |||
Other |
308 | |||
|
|
|||
Total |
28,451 | |||
|
|
|||
Current |
(9,979 | ) | ||
|
|
|||
Noncurrent |
18,472 | |||
|
|
7. | LOANS TO CONDOMINIUMS |
Represent advances to condominiums of the shopping malls to cover cash shortages, notably arising from default. The amounts will be recovered as the common area maintenance fees are received and according to the condominiums cash availability.
Consolidated | ||||||
Subsidiary |
Condominium |
12/31/13 | ||||
Pátio São Bernardo |
Condomínio Shopping Center Plaza Sul | 933 | ||||
Pátio Sertório |
Condomínio Manauara Shopping | 341 | ||||
Pátio Uberlândia |
Condomínio Uberlândia Shopping | 2,712 | ||||
Pátio Londrina |
Condomínio Boulevard Londrina Shopping | 3,561 | ||||
Pátio Goiânia |
Condomínio Passeio das Águas Shopping | 1,889 | ||||
|
|
|||||
Total |
9,436 | |||||
|
|
These loans are considered related-party transactions (see note 24).
The contracted interest rates are based on the market practices and management does not expect problems on the realization of these amounts.
23
Sonae Sierra Brazil BV SARL and Subsidiaries
8. | INVESTMENT UNDER EQUITY-METHOD |
a) | Investment in associate |
(i) | Indirect ownership interest held in Campo Limpo Empreendimentos e Participações Ltda. |
Consolidated | ||||
12/31/13 | ||||
Number of shares held by Sierra Investimentos |
9,435,400 | |||
Interest held in investees capital (%) |
20.00 | |||
Investment balance |
33,375 | |||
Equity in subsidiaries |
7,945 | |||
Consolidated | ||||
4/27/14 | ||||
Number of shares held by Sierra Investimentos |
9,435,400 | |||
Interest held in investees capital (%) |
20.00 | |||
Equity in subsidiaries |
1,003 |
(ii) | Financial information on Campo Limpo Empreendimentos e Participações Ltda. |
12/31/13 | ||||
Balance sheet: |
||||
Current assets |
6,230 | |||
Noncurrent assets |
220,475 | |||
Current liabilities |
2,557 | |||
Noncurrent liabilities |
57,272 | |||
Equity |
166,876 |
2014 Stub | ||||||||||||
Period | 12/31/13 | 12/31/12 | ||||||||||
Profit or loss: |
||||||||||||
Revenue |
6,904 | 22,430 | 20,117 | |||||||||
Profit for the year and comprehensive income |
5,015 | 39,725 | 24,104 |
(iii) | Changes in investments for the years ended December 31, 2013 and 2012 |
Consolidated | ||||
Balance as of December 31, 2011 (unaudited) |
26,157 | |||
Equity in investees |
4,821 | |||
Dividends received |
(2,448 | ) | ||
|
|
|||
Balance as of December 31, 2012 |
28,530 | |||
Equity in investees |
7,945 | |||
Dividends received |
(3,100 | ) | ||
|
|
|||
Balance as of December 31, 2013 |
33,375 | |||
|
|
24
Sonae Sierra Brazil BV SARL and Subsidiaries
b) | Non-controlling interest |
(i) | Sonae Sierra Brasil S.A. and subsidiaries |
Ownership interest held by non-controlling interest
2014 Stub | ||||||||||||
Period | 12/31/13 | 12/31/12 | ||||||||||
Interest in capital held by non-controlling (%) |
33.35 | 33.35 | 33.35 | |||||||||
Net income from non-controlling interests |
6,179 | 57,854 | 61,874 | |||||||||
Non-controlling interests in equity |
750,398 | 743,908 | 697,583 | |||||||||
Dividends paid to non-controlling |
11,596 | 8,920 | 8,156 |
12/31/13 | ||||
Balance sheet: |
||||
Current assets |
481,589 | |||
Noncurrent assets |
4,048,448 | |||
Current liabilities |
224,475 | |||
Noncurrent liabilities |
1,341,003 | |||
Equity |
2,964,559 |
2014 Stub | ||||||||||||
Period | 12/31/13 | 12/31/12 | ||||||||||
Profit or loss: |
||||||||||||
Net operating revenue from rentals, services and other |
97,712 | 275,754 | 256,851 | |||||||||
Changes in fair value of investment properties |
| 344,318 | 193,586 | |||||||||
Net and comprehensive income for the year |
35,148 | 368,497 | 309,795 |
(ii) | Fundos de Investimento Imobiliário I and II |
Ownership interest held by non-controlling interest of Fundos de Investimento Imobiliário I and II
Consolidated | ||||||||||||||||||||||||
Fundo de Investimento Imobiliário I |
Fundo de Investimento Imobiliário II |
|||||||||||||||||||||||
2014 Stub | 2014 Stub | |||||||||||||||||||||||
Period | 12/31/13 | 12/31/12 | Period | 12/31/13 | 12/31/12 | |||||||||||||||||||
Interest in capital held by non-controlling (%) |
12.39 | 12.39 | 12.39 | 41.93 | 41.93 | 41.93 | ||||||||||||||||||
Net income from non-controlling interests |
5,091 | 30,572 | 26,657 | 1,597 | 36,316 | 33,512 | ||||||||||||||||||
Non-controlling interests in equity |
158,232 | 157,771 | 137,279 | 187,708 | 188,888 | 164,411 | ||||||||||||||||||
Dividends paid to non-controlling |
3,052 | 10,133 | 9,333 | 4,044 | 11,719 | 13,339 |
25
Sonae Sierra Brazil BV SARL and Subsidiaries
Financial information of Fundos de Investimento Imobiliário I and II
Fundo de Investimento Imobiliário I 12/31/13 |
Fundo de Investimento Imobiliário II 12/31/13 |
|||||||
Balance sheet: |
||||||||
Current assets |
30,041 | 10,496 | ||||||
Noncurrent assets |
1,256,099 | 447,277 | ||||||
Current liabilities |
12,075 | 6,978 | ||||||
Noncurrent liabilities |
691 | 122 | ||||||
Equity |
1,273,374 | 450,673 |
Fundo de Investimento Imobiliário I |
Fundo de Investimento Imobiliário II |
|||||||||||||||||||||||
2014 Stub | 2014 Stub | |||||||||||||||||||||||
Period | 12/31/13 | 12/31/12 | Period | 12/31/13 | 12/31/12 | |||||||||||||||||||
Profit or loss: |
||||||||||||||||||||||||
Net operating revenue from rentals, services and other |
28,603 | 87,875 | 78,833 | 5,048 | 15,507 | 13,913 | ||||||||||||||||||
Changes in fair value of investment properties |
| 159,615 | 136,667 | | 28,167 | 24,118 | ||||||||||||||||||
Net and comprehensive income for the year |
28,542 | 246,745 | 215,153 | 9,862 | 86,611 | 65,676 |
9. | PROPERTY AND EQUIPMENT |
12/31/13 | ||||||||||||||||
Annual | Consolidated | |||||||||||||||
depreciation rate - % |
Cost | Accumulated depreciation |
Net | |||||||||||||
Facilities |
10 | 2,747 | (2,747 | ) | | |||||||||||
Furniture and fixtures |
10 | 930 | (566 | ) | 364 | |||||||||||
Machinery and equipment |
10 | 674 | (348 | ) | 326 | |||||||||||
IT equipment |
20 | 2,541 | (1,863 | ) | 678 | |||||||||||
Vehicles |
20 | 2,659 | (873 | ) | 1,786 | |||||||||||
Other |
20 | 54 | (49 | ) | 5 | |||||||||||
|
|
|
|
|
|
|||||||||||
Subtotal |
9,605 | (6,446 | ) | 3,159 | ||||||||||||
Advances to suppliers |
| 4 | | 4 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
9,609 | (6,446 | ) | 3,163 | ||||||||||||
|
|
|
|
|
|
26
Sonae Sierra Brazil BV SARL and Subsidiaries
Changes in property and equipment in operation for the years ended December 31, 2013 and 2012
Consolidated | ||||||||||||||||||||||||||||
Facilities | Furniture and fixtures |
Machinery and equipment |
IT equipment |
Vehicles | Other | Total | ||||||||||||||||||||||
Balances as of December 31, 2011 (unaudited) |
207 | 518 | 404 | 870 | 1,532 | 3 | 3,534 | |||||||||||||||||||||
Additions |
| 3 | 39 | 272 | 1,005 | 4 | 1,323 | |||||||||||||||||||||
Write-offs |
| | | (9 | ) | (353 | ) | | (362 | ) | ||||||||||||||||||
Depreciation |
(207 | ) | (81 | ) | (65 | ) | (267 | ) | (678 | ) | (5 | ) | (1,303 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balances as of December 31, 2012 |
| 440 | 378 | 866 | 1,506 | 2 | 3,192 | |||||||||||||||||||||
Transfer to advances to suppliers |
7 | 12 | 109 | 876 | 9 | 1,013 | ||||||||||||||||||||||
Additions |
| | | | 780 | | 780 | |||||||||||||||||||||
Write-offs |
| | | | (573 | ) | | (573 | ) | |||||||||||||||||||
Depreciation |
| (83 | ) | (64 | ) | (297 | ) | (803 | ) | (6 | ) | (1,253 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balances as of December 31, 2013 |
| 364 | 326 | 678 | 1,786 | 5 | 3,159 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Depreciation 2014 Stub Period |
8 | (35 | ) | (22 | ) | (88 | ) | (232 | ) | (2 | ) | (371 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in construction in progress and advances to suppliers for the year ended December 31, 2013
Consolidated | ||||||||||||
Construction in progress |
Advances to suppliers |
Total | ||||||||||
Balances as of December 31, 2011 (unaudited) |
1,979 | 459 | 2,438 | |||||||||
Additions |
| 1,167 | 1,167 | |||||||||
Transfer to fixed asset in operation and intangible |
(1,979 | ) | (1,323 | ) | (3,302 | ) | ||||||
|
|
|
|
|
|
|||||||
Balances as of December 31, 2012 |
| 303 | 303 | |||||||||
Additions |
2,520 | 714 | 3,234 | |||||||||
Transfer to fixed asset in operation and intangible |
(2,520 | ) | (1,013 | ) | (3,533 | ) | ||||||
|
|
|
|
|
|
|||||||
Balances as of December 31, 2013 |
| 4 | 4 | |||||||||
|
|
|
|
|
|
10. | INVESTMENT PROPERTY |
Under IAS 40, properties can be held to earn rentals, for capital appreciation or both to be recognized as an investment property. The Companys management adopted the fair value method, from January 1, 2009.
The measurement and change in fair value of property are made at the date of the financial statements.
27
Sonae Sierra Brazil BV SARL and Subsidiaries
Consolidated | ||||
12/31/13 | ||||
Constructed investment property |
3,879,411 | |||
Investment property under construction |
25,068 | |||
Land |
41,692 | |||
|
|
|||
Total |
3,946,171 | |||
|
|
Changes in investment property
Consolidated | ||||||||||||||||
Constructed properties |
Properties under construction |
Land | Total | |||||||||||||
Balances as of December 31, 2011 (unaudited) |
2,338,796 | 437,254 | | 2,776,050 | ||||||||||||
Additions |
32,207 | 381,320 | | 413,527 | ||||||||||||
Acquisition of interest in property in operation (a) |
72,701 | | | 72,701 | ||||||||||||
Write-off - sale of interest and barter transaction in Shopping Penha (b) |
(11,032 | ) | | | (11,032 | ) | ||||||||||
Write-off - sale of Shopping Metrópole land (b) |
(3,155 | ) | | | (3,155 | ) | ||||||||||
Write-off - sale of the malls Tivoli, Penha and Pátio Brasil (b) |
(193,582 | ) | | | (193,582 | ) | ||||||||||
Transfer |
231,222 | (231,222 | ) | | | |||||||||||
Gain (loss) from the change in fair value of properties |
257,170 | (63,584 | ) | | 193,586 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances as of December 31, 2012 |
2,724,327 | 523,768 | | 3,248,095 | ||||||||||||
Additions (c) |
50,171 | 333,497 | | 383,668 | ||||||||||||
Write-off - barter transaction of Boulevard Londrina (d) |
(29,910 | ) | | | (29,910 | ) | ||||||||||
Transfer (e) |
832,197 | (832,197 | ) | | | |||||||||||
Transfers to land (f) |
(41,692 | ) | | 41,692 | | |||||||||||
Gain from the change in fair value of properties |
344,318 | | | 344,318 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances as of December 31, 2013 |
3,879,411 | 25,068 | 41,692 | 3,946,171 | ||||||||||||
|
|
|
|
|
|
|
|
(a) | Additions to property in operation |
(i) | Additional acquisition of Shopping Plaza Sul |
On January 27, 2012, indirect subsidiary Pátio Penha and CSHG Brasil Shopping FII entered into an exchange agreement with cash consideration, whereby Pátio Penha acquired an additional 30% interest in Shopping Plaza Sul, in exchange for a non-controlling interest in Shopping Penha and another portion in cash in the amount of R$63,701 (original value), to be paid in 42 equal, consecutive installments of R$1,522 (original value), adjusted based on the CDI, beginning on February 27, 2012. After this transaction, the group interest in Shopping Plaza Sul is 60%.
(ii) | Additional acquisition of Franca Shopping |
On October 4, 2012, the Company, through its indirect subsidiary Sierra Enplanta, acquired additional ownership interest of 9.5% in Franca Shopping in the amount of R$9,000. After this acquisition, the Company holds 76.9% of ownership interest in Franca Shopping.
(b) | Disposal of constructed investment properties |
(i) | In connection with the barter transaction described in item (a) (i) above, subsidiary Pátio Penha delivered 17.1% of Shopping Penha to acquire 30% of Shopping Plaza Sul. |
28
Sonae Sierra Brazil BV SARL and Subsidiaries
(ii) | Sale of Shopping Metrópole land |
On August 27, 2012, indirect subsidiary Pátio Boavista sold the land to Setin Group (6,597 sqm) (information not audited by the independent auditors), next to Shopping Metrópole in São Bernardo do Campo, State of São Paulo, for R$11,000 in cash.
As a result of this transaction, subsidiary Pátio Boavista recognized a gain of R$7,467, which is recorded in Other operating income (loss), net, in the statement of income.
(iii) | Sale of interest in Shopping Penha |
On February 6, 2012, subsidiary Pátio Penha sold its non-controlling interest of 5.06% in Shopping Penha to CSHG Brasil Shopping FII R$11,514, which was received in cash.
As a result of this transaction, subsidiary Pátio Penha recognized a gain of R$482, recorded in Other operating income (loss), net, in the statement of income.
(iv) | Sale of the remaining interest in Shopping Penha and the interests in the malls Tivoli and Pátio Brasil |
On November 5, 2012, the Company sold its 10.4% stake in Pátio Brasil Shopping for R$36,133. The interest in Pátio Brasil Shopping was acquired by the malls controlling shareholders.
On December 11, 2012, the Company sold the remaining 51.0% stake in Shopping Penha and its 30.0% stake in Tivoli Shopping for a total of R$180,049. The Company will continue to provide management and sales services to Shopping Penha for at least five years and to Shopping Tivoli for at least three years. The interests in Shopping Penha and Tivoli Shopping were acquired by CSHG Brasil Shopping FII, a fund managed by Credit Suisse Hedging-Griffo.
As a result of these transactions, the indirect subsidiaries Pátio Penha and Sierra Enplanta recorded a gain, net of selling expenses, of R$13,247 and R$3,371, respectively, recorded in line item Other operating (expenses) income, net, in the statement of income for the year ended December 31, 2012.
(c) | Capitalized expenditures for the year ended December 31, 2013, in connection with properties under construction, refer to construction costs of projects Boulevard Londrina Shopping and Passeio das Águas Shopping, which were transferred to properties in operation on the opening date of the projects. Additionally, on September 6, 2013, indirect subsidiary Pátio Uberlândia acquired a land with 45.5 thousand sqm (unaudited information) at the price of R$24,563, for the expansion of Franca Shopping. |
(d) | On May 3, 2013, indirect subsidiary Pátio Londrina transferred 11.36% of the stake held in Boulevard Londrina Shopping to pay for the land acquired for the construction of the aforementioned shopping mall. The Company, through the transaction, maintained its 88.64% interest. |
(e) | On May 3, 2013, Boulevard Londrina Shopping was opened, with 47.8 thousand sqm of Gross Leasable Area (GLA) and 216 stores (unaudited information). |
On October 30, 2013, Passeio das Águas Shopping, located in the city of Goiânia, was launched with 78.1 thousand sqm of GLA and 267 stores (unaudited information).
(f) | Refers to part of the land of projects Uberlândia Shopping and Passeio das Águas Shopping acquired for purposes of appreciation and future sale. |
29
Sonae Sierra Brazil BV SARL and Subsidiaries
The title to part of the property comprising Shopping Boavista project is not registered with the Registry of Deed Office. As of December 31, 2013, the total amount of such property, which was accounted for as investment property, is R$64,655 (R$65,215 as of December 31, 2012).
Fair value measurement methodology
The fair value of each investment property in operation and in construction was determined based on a valuation reported at the time, prepared by an independent external appraiser (Cushman & Wakefield) and reviewed by management.
The valuation of these investment properties was prepared in accordance with the practice statements of the RICS Appraisal and Valuation Manual, published by The Royal Institution of Chartered Surveyors (Red Book), based in the United Kingdom.
The methodology adopted to calculate the market value (fair value) of an investment property in operation involves developing ten-year projections of gains and losses for each shopping mall, added to the residual value, which corresponds to a perpetuity calculated based on the net earnings of the 11th year and a market yield rate (exit yield or cap rate). For the calculation of the perpetuity, the Company considered a real growth rate of 0.0%. These projections are discounted at the measurement date using a market discount rate.
The projections are not forecasted, but simply reflect the best estimate of the appraiser regarding the current view of the market with respect to the future revenue and cost of each property. The yield rate and the discount rate are set according to the local investment and institutional market and the reasonableness of the market value obtained according to the methodology above, equally tested in terms of the initial yield rate obtained based on net yield estimated for the first year of the projections.
In the valuation of the investment properties, some assumptions classified by the Red Book as special were considered. These assumptions relate mainly to recently opened shopping malls, where investment expenses not yet paid were not included, as such amounts are recognized in the financial statements.
The period for measurement at fair value is on semi-annual basis.
The assumptions used as of December 31, 2013, for the measurement at fair value described above, are as follows:
12/31/13 | ||||||
Ten-year discount rate |
Ten-year exit yield | |||||
Minimum |
Maximum |
Minimum |
Maximum | |||
12.25% |
14.00% | 7.75% | 9.50% |
30
Sonae Sierra Brazil BV SARL and Subsidiaries
11. | INTANGIBLE ASSETS |
Annual | ||||||||
amortization | Consolidated | |||||||
rate - % | 12/31/13 | |||||||
Software |
20 | 7,797 | ||||||
Accumulated amortization (*) |
(2,135 | ) | ||||||
|
|
|||||||
Total |
5,662 | |||||||
|
|
(*) | For the 2014 Stub Period and year ended December 31, 2013, the amortization expense of the cost to purchase software, amounting to R$474 and R$1,077, respectively, is recognized under the caption General and administrative expenses in the statement of income. |
Changes in intangible assets
Consolidated | ||||||||||||
Cost | Amortization | Net | ||||||||||
Balance as of December 31, 2011 (unaudited) |
2,153 | (571 | ) | 1,582 | ||||||||
Additions |
511 | (487 | ) | 24 | ||||||||
Transfer from construction in progress |
1,979 | | 1,979 | |||||||||
|
|
|
|
|
|
|||||||
Balance as of December 31, 2012 |
4,643 | (1,058 | ) | 3,585 | ||||||||
Additions |
634 | (1,077 | ) | (443 | ) | |||||||
Transfer from construction in progress |
2,520 | | 2,520 | |||||||||
|
|
|
|
|
|
|||||||
Balance as of December 31, 2013 |
7,797 | (2,135 | ) | 5,662 | ||||||||
|
|
|
|
|
|
12. | LOANS AND FINANCING |
Consolidated | ||||||||
Domestic |
Maturity | 12/31/13 | ||||||
Banco do Amazonas S.A. - BASA (a) |
12/10/20 | 119,546 | ||||||
Banco Itaú BBA S.A. (b) |
10/21/15 | 8,152 | ||||||
Banco Itaú BBA S.A. (c) |
10/17/16 | 14,019 | ||||||
Banco Bradesco S.A. (d) |
10/27/25 | 117,778 | ||||||
Banco Bradesco S.A. (e) |
10/26/25 | 72,784 | ||||||
Banco Itaú BBA S.A. (f) |
05/10/23 | 42,654 | ||||||
Banco Santander S.A. (g) |
06/22/23 | 196,730 | ||||||
|
|
|||||||
Total |
571,663 | |||||||
|
|
|||||||
Current |
(61,168 | ) | ||||||
|
|
|||||||
Noncurrent |
510,495 | |||||||
|
|
31
Sonae Sierra Brazil BV SARL and Subsidiaries
(a) | On December 17, 2008, subsidiary Pátio Sertório raised a loan of R$90,315 with Banco do Amazonas S.A. - BASA to finance the construction of the mall Shopping Manauara. In the year ended December 31, 2009, the subsidiary obtained new loans totaling R$21,985. These loans bear fixed interest of 10% per year, with possible discount of 15% if payments are made on the maturity date, and have a grace period of 48 months, during which only 50% of interests incurred are paid. The remaining balance of accrued interest will be paid after the grace period together with the principal repayment. The loan is collateralized by the Shopping Manauara property. The Company and subsidiary Sierra Investimentos are guarantors of this transaction. |
(b) | On November 16, 2010, subsidiary Sierra Investimentos Brasil Ltda. raised R$20,000 with Banco Itaú BBA S.A. to finance working capital. This loan is subject to average interest linked to CDI plus 2.85% per year. The Company is the guarantor of this transaction. The loan is collateralized by: (i) the Shopping Metrópole property; and (ii) net receivables of Shopping Metrópole. This loan has a six-month grace period for the payment of the first installment of principal. On June 19, 2013, Sierra Investimentos changed the interest rate applied to CDI plus 1.66% per year. |
(c) | On November 16, 2010, subsidiary Pátio Boavista raised R$27,000 with Banco Itaú BBA S.A. to finance working capital. This loan is subject to average interest linked to CDI plus 3.3% per year. The Company is the guarantor of this transaction. The loan is collateralized by: (i) the Shopping Metrópole property; and (ii) net receivables of Shopping Metrópole. This loan has a six-month grace period for the payment of the first installment of principal. On June 19, 2013, Pátio Boavista changed the interest rate applied to CDI plus 1.78% per year. |
(d) | In the period from June to December 2013, subsidiary Pátio Londrina raised R$117,027 with Banco Bradesco S.A. to finance the construction of Shopping Londrina. This loan, in the total amount of R$120,000, bears a fixed rate equivalent to TR (a managed prime rate) plus 10.9% per year. The agreement is effective for 15 years, with a 2-year grace period for repaying the principal, beginning on April 27, 2014 (unaudited). After this period, the outstanding balance will be paid in 155 monthly consecutive installments. The loan is collateralized by the Shopping Londrina property. The Company is the guarantor of this transaction. On December 14, 2012, Pátio Londrina renegotiated the agreed interest rate to TR plus 9.7% per year. |
(e) | From August 2010 to February 2012, subsidiary Pátio Uberlândia raised R$77,152 with Banco Bradesco S.A. to finance the construction of Shopping Uberlândia with a fixed rate equivalent to TR plus 11.3% per year. The agreement is effective for 15 years, with a 2-year grace period for the interest installment. After this period, the outstanding balance will be paid in 156 monthly consecutive installments. The loan is collateralized by the Shopping Uberlândia property. The Company is the guarantor of this transaction. On November 21, 2012, Pátio Uberlândia renegotiated the agreed interest rate to TR plus 9.7% per year. |
(f) | On June 29, 2011, subsidiary Pátio Boavista raised R$52,651 with Banco Itaú BBA S.A. to finance the expansion of Shopping Metrópole. This loan bears a fixed rate equivalent to TR plus 10.30% per year. The agreement is effective for 7 years, with a 12-month grace period for repaying the principal. After this period, the outstanding balance will be paid in 72 monthly consecutive installments. The Company is the guarantor of this transaction. |
32
Sonae Sierra Brazil BV SARL and Subsidiaries
The loan is collateralized by: (i) the Shopping Metrópole property; and (ii) Shopping Metrópoles net receivables. On June 19, 2013, Pátio Boavista renegotiated the interest rate applied to TR plus 9.3% per year. On September 23, 2013, Pátio Boavista renegotiated the repayment schedule to 128 monthly consecutive installments; because of this change, the maturity date of the agreement changed from May 10, 2018 to May 10, 2023. |
(g) | Between March and December 2012, subsidiary Pátio Goiânia raised R$179,005 with Banco Santander (Brasil) to finance the construction of Passeio das Águas Shopping. The approved funding line, in the total amount of R$200,000, bears a fixed rate equivalent to the TR plus 11.00% per year. The agreement is effective for 12 years, with a 24-month grace period for repaying the principal. After this period, the outstanding balance will be paid in 111 monthly, consecutive installments. The finance is collateralized by Passeio das Águas Shopping property. The Company is the guarantor of this transaction. On December 21, 2012, Pátio Goiânia renegotiated the agreed interest rate to TR plus 9.7% per year. |
As of December 31, 2013, the total amount of the properties pledged to the banks, in connection with the borrowings and financing, is R$1,983,836 and the amount of net receivables pledged by Pátio Boavista is R$3,614.
Covenants
The loan agreements entered by the Company and its subsidiaries, described above, do not provide for compliance with any financial ratios, such as debt ratios, expense coverage with interests, etc.
Changes in loans and financing for the years ended December 31, 2013 and 2012
Balance as of December 31, 2011 |
350,891 | |||
New borrowings |
78,984 | |||
Payments - principal |
(11,579 | ) | ||
Interest payments |
(29,142 | ) | ||
Interest capitalized on investment property under construction |
12,556 | |||
Interest allocated to net income |
27,618 | |||
|
|
|||
Balance as of December 31, 2012 |
429,328 | |||
New borrowings |
169,825 | |||
Payments - principal |
(38,161 | ) | ||
Interest payments |
(37,844 | ) | ||
Interest capitalized on investment property under construction |
12,966 | |||
Interest allocated to net income |
35,549 | |||
|
|
|||
Balance as of December 31, 2013 |
571,663 | |||
|
|
33
Sonae Sierra Brazil BV SARL and Subsidiaries
The noncurrent portion of line item Loans and financing as of December 31, 2013, matures as follows:
2015 |
66,845 | |||
2016 |
62,323 | |||
2017 |
58,232 | |||
2018 |
58,232 | |||
2019 |
58,232 | |||
2020 - 2024 |
188,667 | |||
2025 - 2026 |
17,964 | |||
|
|
|||
Total |
510,495 | |||
|
|
13. | DEBENTURES |
Consolidated | ||||||||
Debentures |
Maturity | 12/31/13 | ||||||
Securities - 1st series |
02/15/17 | 97,542 | ||||||
Securities - 2nd series |
02/15/19 | 233,618 | ||||||
Loss with derivative transaction in fair value hedge accounting |
02/15/19 | 1,828 | ||||||
|
|
|||||||
Total |
332,988 | |||||||
|
|
|||||||
Current |
(14,903 | ) | ||||||
|
|
|||||||
Noncurrent |
318,085 | |||||||
|
|
On February 15, 2012, the Company issued 30,000 nonconvertible debentures, in two series, with a par value of R$10 each, totaling R$300,000. After the book-building procedure carried out on March 2, 2012, which defined the debenture interest, the series can be summarized as follows:
| 1st series: 9,550 debentures, in the total amount of R$95,500, yielding a floating annual rate equivalent to CDI plus 0.96%, with final maturity within five years. Compensation will be paid semiannually. |
| 2nd series: 20,450 debentures, in the total amount of R$204,500, yielding a floating annual rate equivalent to consumer price index (IPCA) plus 6.25%, with final maturity within seven years. Compensation will be paid annually. |
As described in note 26.3, on August 22, 2013, the Company contracted a derivative instrument (swap) in the notional amount of R$54,500, to partially hedge the inflation rate risk (IPCA) subject to the interest of the 2nd series of debentures. In this transaction, the Company replaced the IPCA + 6.25% per year by the CDI +1.24% per year.
The swap agreement expires within six years and matures on February 15, 2019. This maturity date is the same as the hedged instrument.
This transaction is intended to adjust the Companys indebtedness, including the change from variable IPCA rate to the CDI. Although both rates are variable, the CDI currently reflects the primary compensation index of the Companys financial assets and, therefore, is more appropriate to manage financial instruments.
34
Sonae Sierra Brazil BV SARL and Subsidiaries
Changes in debentures, recorded in current and noncurrent liabilities, are broken down as follows:
Balance as of December 31, 2012 |
318,052 | |||
New borrowings |
| |||
Amortizable borrowing costs |
1,111 | |||
Interest allocated to net income |
35,120 | |||
Interest payments |
(21,141 | ) | ||
Gain on debentures adjustment in fair value hedging accounting |
(1,982 | ) | ||
Loss with derivatives transaction in fair value hedging accounting |
1,828 | |||
|
|
|||
Balance as of December 31, 2013 |
332,988 | |||
|
|
The debenture, classified in noncurrent liabilities, will be repaid as follows:
Principal and interests |
Unamortized cost | R$ | ||||||||||
2015 |
| (1,111 | ) | (1,111 | ) | |||||||
2016 (repayment of 50% of 1st series) |
47,750 | (1,111 | ) | 46,639 | ||||||||
2017 (repayment of 50% of 1st series) |
47,750 | (744 | ) | 47,006 | ||||||||
2018 (repayment of 50% of 2nd series) |
113,167 | (671 | ) | 112,496 | ||||||||
2019 (repayment of 50% of 2nd series) |
113,167 | (112 | ) | 113,055 | ||||||||
|
|
|
|
|
|
|||||||
Total |
321,834 | (3,749 | ) | 318,085 | ||||||||
|
|
|
|
|
|
Covenants
The debenture indenture subjects the Company to covenants, which are related mainly to financial ratios, as Earnings Before Interest, Taxes, Depreciation and Amortization - EBITDA (*), net debt and net financing expenses. Below we demonstrate the contractually required ratios:
Contractually required ratio | ||||
Net debt/EBITDA |
Equal or less than 3.5 | |||
EBITDA/Net financing expenses |
Equal or greater than 1.75 |
As of December 31, 2013, the Companys management believes that it is compliant with all covenants.
(*) | The indenture defines EBITDA as net income before net financial expenses (including net currency exchange variations), income and social contribution taxes, depreciation and amortization. |
35
Sonae Sierra Brazil BV SARL and Subsidiaries
14. | PAYABLES FOR PURCHASE OF ASSET |
Consolidated | ||||
12/31/13 | ||||
Acquisition of equity interest in shopping mall (a) |
31,840 | |||
Current |
(21,186 | ) | ||
|
|
|||
Noncurrent |
10,654 | |||
|
|
Changes in trade accounts payable - acquisition of assets are as follows:
Balance as of December 31, 2011 (unaudited) |
25,000 | |||
Acquisition of equity interest in shopping mall (a) |
63,701 | |||
Payment of principal |
(18,040 | ) | ||
Financial charges allocated to profit or loss |
4,162 | |||
Financial charges capitalized under investment property under construction |
4,302 | |||
Financial charges paid |
(715 | ) | ||
|
|
|||
Balance as of December 31, 2012 |
78,410 | |||
Payment of principal |
(18,264 | ) | ||
Financial charges allocated to profit or loss |
3,148 | |||
Financial charges paid |
(2,151 | ) | ||
Financial charges capitalized under investment property under construction |
607 | |||
Write-off - barter transaction of Boulevard Londrina Shopping |
(29,910 | ) | ||
|
|
|||
Balance as of December 31, 2013 |
31,840 | |||
|
|
(a) | The balance payable refers to an asset barter transaction with cash consideration involving Shopping Center Penha for acquisition of stake in Shopping Plaza Sul. Such account payables will be settled in 42 equal consecutive installments of R$1,522 (original value), adjusted based on the CDI. As of December 31, 2013, 18 installments are outstanding. |
36
Sonae Sierra Brazil BV SARL and Subsidiaries
15. | KEY MONEY |
Consolidated | ||||||
Subsidiary |
Shopping mall |
12/31/13 | ||||
Pátio Boavista |
Boavista Shopping | 2,962 | ||||
Pátio Sertório |
Shopping Manauara | 2,007 | ||||
Pátio Uberlândia |
Uberlândia Shopping | 5,021 | ||||
Pátio Londrina |
Boulevard Londrina | 6,839 | ||||
Pátio Goiânia |
Passeio das Águas | 7,270 | ||||
Fundo de Investimento Imobiliário I |
Shopping Parque D. Pedro | 1,092 | ||||
Fundo de Investimento Imobiliário II |
Shopping Parque D. Pedro | 193 | ||||
|
|
|||||
Total |
25,384 | |||||
|
|
|||||
Current |
(8,340 | ) | ||||
|
|
|||||
Noncurrent |
17,044 | |||||
|
|
Key money refers to the lease agreements for the use of property space, payable by tenants from the time the point of sales lease agreement is executed. New tenants pay for the right to use commercial locations in the shopping malls upon the launching of new projects, expansions or when a store is returned. These amounts are negotiated based on the market value of the locations.
The key money amounts are billed according to the lease term, up to 60 months, and are recognized on a straight-line basis in the statement of income over the lease agreement period.
16. | RESERVE FOR CIVIL, TAX, LABOR AND SOCIAL SECURITY RISKS |
The Company and its subsidiaries are parties to civil, tax, labor and social security lawsuits at different courts and levels. Based on the opinion of its legal counsel, the Companys management recorded a reserve for lawsuits whose likelihood of an unfavorable outcome is considered probable. The reserve for risks is broken down as follows:
Consolidated | ||||
12/31/13 | ||||
Labor and social security (a) |
3,477 | |||
Tax (b) |
3,754 | |||
Civil (c) |
682 | |||
|
|
|||
Total |
7,913 | |||
|
|
37
Sonae Sierra Brazil BV SARL and Subsidiaries
Changes in the reserve for civil, tax, labor and social security risks
Consolidated | ||||||||||||||||
Labor and social security (a) |
Tax (b) | Civil (c) | Total | |||||||||||||
Balance as of December 31, 2011 (unaudited) |
5,375 | 3,455 | 1,455 | 10,285 | ||||||||||||
Addition |
1,399 | | 373 | 1,772 | ||||||||||||
Inflation adjustments (*) |
357 | 142 | 231 | 730 | ||||||||||||
Payments |
| | (6 | ) | (6 | ) | ||||||||||
Reversals |
(2,940 | ) | | (402 | ) | (3,342 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2012 |
4,191 | 3,597 | 1,651 | 9,439 | ||||||||||||
Addition |
665 | | 23 | 688 | ||||||||||||
Inflation adjustments (*) |
335 | 157 | 75 | 567 | ||||||||||||
Payments |
| | (32 | ) | (32 | ) | ||||||||||
Reversals |
(1,714 | ) | | (1,035 | ) | (2,749 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2013 |
3,477 | 3,754 | 682 | 7,913 | ||||||||||||
|
|
|
|
|
|
|
|
(*) Adjusted for inflation in accordance with the specific indexes defined by the respective courts or legislation in force
(a) | Labor and social security |
As of December 31, 2013, the Company and its subsidiaries whose contingency in the amount of R$1,210 was assessed as a probable loss by the legal counsel.
For the social security risks, as of December 31, 2013, the Company maintained a reserve of R$2,267 according to the legal counsels opinion, which estimated that the likelihood of loss on these lawsuits is probable.
(b) | Tax |
IRRF, CIDE, CPMF and CADE
The Company is claiming the suspension of the payment of IRRF, economic intervention contribution (CIDE) and tax on banking transaction (CPMF) on payments made abroad. The historical amounts of such lawsuits correspond to the total amount of R$3,344, which are deposited in escrow and accrued, since the likelihood of loss on these lawsuits is probable.
The CIDE and IRRF lawsuits had an unfavorable decision to the Company on appellate court and await ruling at special appeal.
There was a final and unappealable decision on the lawsuit challenging the CPMF levied an unfavorable decision of foreign payments to subsidiary Sierra Investimentos. This decision will not require disbursements since the court costs have already been paid and the subsidiary was not sentenced to pay attorneys fees to the prevailing party arising from the injunction. Presently, subsidiary Sierra Investimentos awaits the settlement of the escrow deposit, which amounts to R$1,278, in order to write off the tax credit. Additionally, Sierra Investimentos recognizes a reserve for contingencies and made an escrow deposit of R$410, corresponding to the administrative fine imposed by the CADE (Brazilian antitrust agency). As of December 31, 2012, this lawsuit had already obtained a final and un-appealable decision. Presently, Sierra Investimentos is awaiting the withdrawal of the escrow deposits made by the CADE to settle the fine, with no impact on net income.
38
Sonae Sierra Brazil BV SARL and Subsidiaries
(c) | Civil |
The Companys subsidiaries are defendants in several lawsuits arising from their regular business activities, especially involving compensation, contract termination and shopping mall rental renewal and revision lawsuits.
The Companys subsidiaries are plaintiffs in lawsuits mostly related to evictions (due to default and contractual breaches), executions and collections.
The Company and its subsidiaries are parties to other tax, civil, labor and social security lawsuits arising from the normal course of their business and whose likelihood of loss is possible. These lawsuits amounted to R$70,695 as of December 31, 2013. The Company does not expect a material impact on its financial statements. The main lawsuits are described as follows:
(i) | The subsidiary Pátio Sertório Shopping Ltda. filed suit against the building company responsible for the construction of Manauara Shopping. It refers to an action involving rescission of contract combined with indemnity for pain and suffering, claiming payment of compensation due to nonperformance and irregularities in the construction of Manauara Shopping. Additionally, subsidiary Pátio Sertório Shopping Ltda. is a defendant in a lawsuit started by the building company, claiming payment of the updated amount of R$25,253 related to the execution of the construction of Manauara Shopping. Currently the proceeding awaits ruling at lower court. |
(ii) | The subsidiary Pátio Londrina is a party to an arbitration proceeding filed against the building company responsible for the construction of Boulevard Londrina Shopping. The counterparty claims compensation for the agreement termination, damages, pain and suffering for the non-compliance of the construction schedule and the resulting delay of the projects opening. The building company claims compensation for pain and suffering, damages and loss of profits in the updated amount of R$35,958. Currently the proceeding awaits the arbitration award. |
Escrow deposits
Breakdown of escrow deposits:
Consolidated | ||||
12/31/13 | ||||
Labor and social security |
454 | |||
Tax |
4,206 | |||
Civil |
7,017 | |||
|
|
|||
Total |
11,677 | |||
|
|
39
Sonae Sierra Brazil BV SARL and Subsidiaries
17. | TAXES PAYABLE |
Consolidated | ||||
12/31/13 | ||||
Income tax and social contribution |
4,163 | |||
Withholding income taxes (IRRF) |
1,355 | |||
Social Security Funding Tax on Revenue (COFINS) |
1,355 | |||
Social Integration Program Tax on Revenue (PIS) |
304 | |||
Services tax (ISS) |
523 | |||
Other |
200 | |||
|
|
|||
Total |
7,900 | |||
|
|
18. | EQUITY - COMPANY |
18.1. | Capital |
As of December 31, 2013, the authorized share capital of the Company amounts to 91,000, divided into 910 ordinary shares with a nominal value of 100 each.
As of December 31, 2013, the issued and paid-up capital amounts to R$48, equivalent to 18,400, divided into 92 A Shares and 92 B Shares, with a nominal value of 100 each.
18.2. | Capital and share premium |
On April 4, 2012 it was approved by the shareholders that the Company repays share premium to the shareholders in the amount of R$2,492, equivalent to 1,000,000 of the Company to Sierra Investimentos and the amount of R$2,492, equivalent to 1,000,000 of the Company to DDR Luxembourg SARL.
18.3. | Dividends |
Company
For the 2014 Stub Period and the years ended December 31, 2013 and 2012, the Company paid dividends totaling R$8,797, R$41,620 and R$31,445, respectively.
Sonae Sierra Brasil S.A.
Under the Sonae Sierra Brasil S.A. bylaws, shareholders are entitled to minimum dividends of 25% of net income adjusted pursuant to the Brazilian Corporate Law. These realized minimum mandatory dividends were recorded by the subsidiary as of December 31, 2013 and 2012 in the amounts of R$34,772 and R$26,748, respectively.
On May 15, 2012, Sonae Sierra Brasil S.A. paid R$24,456 (R$16,300 to controlling shareholders and R$8,156 to non-controlling shareholders).
On May 15, 2013, Sonae Sierra Brasil S.A. paid R$26,748 (R$17,828 to controlling shareholders and R$8,920 to non-controlling shareholders).
40
Sonae Sierra Brazil BV SARL and Subsidiaries
The realized minimum mandatory dividends related to non-controlling interests as of December 31, 2013 and 2012 amount to R$11,596 and R$8,920, respectively.
Fundos de Investimento Imobiliário I and II
Fundos de Investimento Imobiliário I and II distribute to unit holders a minimum of 95% of their income, even though in excess of the revenue (expenses) (cash basis), calculated based on the existing cash and cash equivalents payable to unit holders registered as such on the closing of the last business day of the month preceding the respective payment.
For the 2014 Stub Period and the years ended December 31, 2013 and 2012, dividends paid totaled R$7,096, R$21,852 and R$22,672, respectively.
As of December 31, 2013 and 2012, the balances of dividends payable related to non-controlling interests amount to R$2,837 and R$3,015, respectively.
18.4. | Earnings per share |
As required by IAS 33 - Earnings per Share, below is the reconciliation of net income to the amounts used to calculate the basic earnings per share.
The Company has no debt convertible into shares or stock options granted; therefore, the diluted earnings per share were equal to the basic earnings per share calculated as follows:
Consolidated | ||||||||||||
2014 Stub Period |
12/31/13 | 12/31/12 | ||||||||||
Net income for the year attributable to the Companys owners |
23,809 | 232,667 | 182,409 | |||||||||
Weighted average of outstanding common shares |
184 | 184 | 184 | |||||||||
|
|
|
|
|
|
|||||||
Basic earnings per share |
129 | 1,264 | 991 | |||||||||
|
|
|
|
|
|
41
Sonae Sierra Brazil BV SARL and Subsidiaries
19. | NET OPERATING REVENUE FROM RENTALS, SERVICES AND OTHER |
Consolidated | ||||||||||||
2014 Stub Period |
12/31/13 | 12/31/12 | ||||||||||
Gross revenue: |
||||||||||||
Rentals |
88,664 | 243,457 | 224,350 | |||||||||
Revenue from services |
7,539 | 20,202 | 17,763 | |||||||||
Parking revenue |
9,785 | 27,919 | 26,471 | |||||||||
Key money |
5,612 | 18,993 | 12,064 | |||||||||
Other income |
1,014 | 5,198 | 2,784 | |||||||||
|
|
|
|
|
|
|||||||
Total |
112,614 | 315,769 | 283,432 | |||||||||
|
|
|
|
|
|
|||||||
Deductions: |
||||||||||||
Taxes on rentals and services |
(5,679 | ) | (20,968 | ) | (18,255 | ) | ||||||
Discounts and abatements |
(9,223 | ) | (19,047 | ) | (8,326 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
(14,902 | ) | (40,015 | ) | (26,581 | ) | ||||||
|
|
|
|
|
|
|||||||
Net revenue |
97,712 | 275,754 | 256,851 | |||||||||
|
|
|
|
|
|
20. | EXPENSES BY NATURE |
Consolidated | ||||||||||||
2014 Stub Period |
12/31/13 | 12/31/12 | ||||||||||
Depreciation and amortization |
845 | 2,330 | 1,790 | |||||||||
Personnel |
12,160 | 31,694 | 28,676 | |||||||||
Services rendered by third parties |
3,227 | 11,438 | 10,507 | |||||||||
Cost of occupancy (vacant stores) |
7,522 | 14,501 | 6,111 | |||||||||
Costs of contractual agreements with tenants |
3,288 | 6,299 | 2,219 | |||||||||
Allowance for (reversal of) doubtful accounts receivable |
2,560 | 2,792 | 2,401 | |||||||||
Rent |
995 | 2,756 | 2,571 | |||||||||
Others |
2,942 | 9,543 | 9,296 | |||||||||
|
|
|
|
|
|
|||||||
Total |
33,539 | 81,353 | 63,571 | |||||||||
|
|
|
|
|
|
|||||||
Classified as: |
||||||||||||
Cost of rentals, services and other |
24,330 | 58,715 | 43,177 | |||||||||
General and administrative expenses |
9,209 | 22,638 | 20,394 |
42
Sonae Sierra Brazil BV SARL and Subsidiaries
21. | OTHER OPERATING INCOME, NET |
Consolidated | ||||||||||||
2014 Stub Period |
12/31/13 | 12/31/12 | ||||||||||
Gain on the sale of investment properties |
| | 30,758 | |||||||||
Sales transaction costs |
| | (6,048 | ) | ||||||||
Other |
956 | 5,621 | 3,091 | |||||||||
|
|
|
|
|
|
|||||||
Total |
956 | 5,621 | 27,801 | |||||||||
|
|
|
|
|
|
22. | FINANCIAL INCOME (EXPENSES), NET |
Consolidated | ||||||||||||
2014 Stub Period |
12/31/13 | 12/31/12 | ||||||||||
Financial income: |
||||||||||||
Loans and receivables: |
||||||||||||
Interest from short-term investments |
17,820 | 41,374 | 49,607 | |||||||||
Interest receivable |
876 | 1,333 | 1,364 | |||||||||
Monetary and exchange variations |
61 | 2,875 | 369 | |||||||||
Other |
1,916 | 2,726 | 1,328 | |||||||||
|
|
|
|
|
|
|||||||
20,673 | 48,308 | 52,668 | ||||||||||
|
|
|
|
|
|
|||||||
Fair value through profit and loss- |
||||||||||||
Gain arising from debenture adjustment hedged in a fair value hedge accounting |
581 | 1,982 | | |||||||||
|
|
|
|
|
|
|||||||
581 | 1,982 | | ||||||||||
21,254 | 50,290 | 52,668 | ||||||||||
|
|
|
|
|
|
43
Sonae Sierra Brazil BV SARL and Subsidiaries
Consolidated | ||||||||||||
2014 Stub Period |
12/31/13 | 12/31/12 | ||||||||||
Financial expenses: |
||||||||||||
Other financial liabilities: |
||||||||||||
Monetary and exchange variations |
(895 | ) | (31 | ) | (2,930 | ) | ||||||
Interest on loans and financing |
(18,175 | ) | (35,549 | ) | (27,618 | ) | ||||||
Interest on payables for purchase of land |
(937 | ) | (3,148 | ) | (4,162 | ) | ||||||
Interest on debentures |
(16,016 | ) | (36,231 | ) | (29,443 | ) | ||||||
Other |
(145 | ) | (1,123 | ) | (1,605 | ) | ||||||
|
|
|
|
|
|
|||||||
(36,168 | ) | (76,082 | ) | (65,758 | ) | |||||||
Fair value through profit and loss- |
||||||||||||
Loss on derivatives designated as a hedging instrument in a fair value hedge accounting |
(1,395 | ) | (1,828 | ) | | |||||||
|
|
|
|
|
|
|||||||
(1,395 | ) | (1,828 | ) | | ||||||||
(37,563 | ) | (77,910 | ) | (65,758 | ) | |||||||
|
|
|
|
|
|
|||||||
Total, net |
(16,309 | ) | (27,620 | ) | (13,090 | ) | ||||||
|
|
|
|
|
|
23. | INCOME TAX AND SOCIAL CONTRIBUTION |
a) | Income tax and social contribution expense |
The Company and its subsidiaries operations are located in Brazil; therefore, the reconciliation of income tax expense was prepared according to the statutory rates in Brazil.
44
Sonae Sierra Brazil BV SARL and Subsidiaries
Consolidated | ||||||||||||
2014 Stub Period |
12/31/13 | 12/31/12 | ||||||||||
Income before income tax and social contribution |
47,920 | 519,831 | 405,009 | |||||||||
Statutory rate |
34 | % | 34 | % | 34 | % | ||||||
|
|
|
|
|
|
|||||||
Expected income tax and social contribution charge, at statutory rate |
(16,293 | ) | (176,743 | ) | (137,703 | ) | ||||||
Effect of income tax and social contribution on permanent differences: |
||||||||||||
Equity in investees |
341 | 2,701 | 1,639 | |||||||||
Other permanent differences |
851 | 326 | (185 | ) | ||||||||
Effect of income tax and social contribution on temporary differences and tax loss carryforwards: |
||||||||||||
Temporary differences |
(639 | ) | 91 | (927 | ) | |||||||
Tax loss carryforwards (**) |
(890 | ) | (28,482 | ) | (1,488 | ) | ||||||
Effect of taxation of subsidiaries taxed based on deemed income |
956 | 1,568 | 4,237 | |||||||||
Effect of different taxation of Fundos de Investimento Imobiliário I and II (*) |
4,430 | 38,117 | 33,870 | |||||||||
|
|
|
|
|
|
|||||||
Income tax and social contribution expense at effective rate |
(11,244 | ) | (162,422 | ) | (100,557 | ) | ||||||
|
|
|
|
|
|
|||||||
Effective rate |
23 | % | 31 | % | 25 | % | ||||||
|
|
|
|
|
|
(*) | Fundos de Investimento Imobiliário I and II are tax exempt (see details in note 2.22). |
(**) | Deferred income taxes on tax losses not recognized. |
b) | Deferred income tax and social contribution |
Based on analyses of the multi-year operating projections, the Company and its subsidiaries recognized tax credits related to tax loss carryforwards and temporary differences in prior years.
Maintenance of tax credits from tax loss carryforwards (deferred income tax and social contribution tax loss carryforwards) is supported by future earnings projections prepared by the Companys management and periodically reviewed, for the next ten years, to determine the recoverability of tax loss carryforwards and temporary differences.
45
Sonae Sierra Brazil BV SARL and Subsidiaries
Deferred income tax and social contribution are broken down as follows:
12/31/13 | ||||
Tax loss carryforward |
8,249 | |||
Reserve for civil, tax, labor and social security risks |
1,767 | |||
Allowance for doubtful accounts |
2,174 | |||
Other temporary reserves |
(9 | ) | ||
Change in fair value of investment property |
(532,936 | ) | ||
|
|
|||
Total deferred income tax and social contribution |
(520,755 | ) | ||
|
|
|||
In noncurrent assets |
5,036 | |||
|
|
|||
In noncurrent liabilities |
(525,791 | ) | ||
|
|
Recognized noncurrent tax credits totaling R$17,226 as of December 31, 2013 should be realized within up to ten years, as shown below:
|
| |||
Year |
Consolidated | |||
2014 |
361 | |||
2015 |
| |||
2016 |
268 | |||
2017 |
1,707 | |||
2018 |
2,963 | |||
2019 - 2023 |
11,927 | |||
|
|
|||
Total |
17,226 | |||
|
|
24. | RELATED-PARTY TRANSACTIONS |
In the course of the Companys business, controlling shareholders, subsidiaries, the associates and condominiums (related parties) carry out commercial and financial intercompany transactions. These commercial transactions primarily include management of shopping malls (common charges and promotion fund).
46
Sonae Sierra Brazil BV SARL and Subsidiaries
Balances with related parties for the 2014 Stub Period and as of December 31, 2013 and 2012 are as follows:
Balance sheet |
Purpose | 12/31/13 | ||||
Current assets- |
||||||
Affiliates: |
||||||
Condomínio Shopping Center Penha |
(a) | 110 | ||||
Condomínio Civil Center Shopping São Bernardo |
(b) | 420 | ||||
Condomínio Tivoli Shopping Center |
(b) | 64 | ||||
Condomínio Franca Shopping Center |
(b) | 58 | ||||
Condomínio Parque Dom Pedro Shopping |
(b) | 633 | ||||
Condomínio Shopping Center Plaza Sul |
(b) | 143 | ||||
|
|
|||||
Total (a) |
1,428 | |||||
|
|
|||||
Noncurrent assets- |
||||||
Affiliates: |
||||||
Condomínio Manauara |
(c) | 341 | ||||
Condomínio Shopping Boavista |
(c) | | ||||
Condomínio Shopping Center Plaza Sul |
(c) | 933 | ||||
Condomínio Boulevard Londrina Shopping |
(c) | 3,561 | ||||
Condomínio Passeio das Águas Shopping |
(c) | 1,889 | ||||
Condomínio Uberlândia Shopping |
(c) | 2,712 | ||||
|
|
|||||
Total |
9,436 | |||||
|
|
Consolidated | ||||||||||||||
Profit or loss |
Purpose | 2014 Stub Period |
12/31/13 | 12/31/12 | ||||||||||
Operating revenue- |
||||||||||||||
Affiliates: |
||||||||||||||
Condomínio Shopping Center Penha |
(b) | 450 | 1,317 | 1,241 | ||||||||||
Condomínio Civil Center Shopping São Bernardo |
(b) | 363 | 1,022 | 1,081 | ||||||||||
Condomínio Tivoli Shopping Center |
(b) | 196 | 567 | 520 | ||||||||||
Condomínio Shopping Pátio Brasil |
(b) | | | 632 | ||||||||||
Condomínio Franca Shopping Center |
(b) | 153 | 439 | 412 | ||||||||||
Condomínio Boavista Shopping |
(b) | 308 | 901 | 877 | ||||||||||
Condomínio Shopping Center Plaza Sul |
(b) | 558 | 1,606 | 1,504 | ||||||||||
Condomínio Parque Dom Pedro Shopping |
(b) | 1,064 | 2,908 | 2,750 | ||||||||||
Condomínio Campo Limpo Shopping |
(b) | 304 | 887 | 818 | ||||||||||
Condomínio Manauara Shopping |
(b) | 633 | 1,849 | 1,726 | ||||||||||
Uberlândia Shopping |
(b) | 426 | 1,265 | 911 | ||||||||||
Boulevard Londrina Shopping |
(b) | 458 | 851 | | ||||||||||
Passeio das Águas Shopping |
(b) | 598 | 245 | | ||||||||||
|
|
|
|
|
|
|||||||||
Total |
5,511 | 13,857 | 12,472 | |||||||||||
|
|
|
|
|
|
(a) | Included in the balance of receivables, net and other receivables. |
(b) | Refers to revenue from services provided by the subsidiary Unishopping Consultoria Ltda., which relates to the management of common charges and the promotion fund of the condominiums. This revenue is recognized in line item Revenue from services, as disclosed in note 19. |
(c) | Refers to loans to condominiums described in note 7. |
47
Sonae Sierra Brazil BV SARL and Subsidiaries
25. | OPERATING SEGMENTS REPORTING |
Segment reporting is used by the Companys top management to make decisions about resources to be allocated to a segment and assess its performance.
Therefore, the Companys segments reportable pursuant to IFRS 8 are as follows:
a) | Development and management |
Refers to the provision of asset and property management services to shopping malls tenants and owners, brokerage services, and development of a project for a new shopping mall
b) | Investment |
Refers to the rental of store space to tenants and other commercial space, such as sales stands, rental of commercial space for advertising and promotion, operation of parking lots, and the property space (key money) lease fee
(i) | Segment reporting of asset |
12/31/13 | ||||||||||||
Development and management |
Investment | Total | ||||||||||
Asset |
32,996 | 4,510,639 | 4,543,635 | |||||||||
|
|
|
|
|
|
|||||||
12/31/12 | ||||||||||||
Development and management |
Investment | Total | ||||||||||
Asset |
25,819 | 4,057,588 | 4,083,407 | |||||||||
|
|
|
|
|
|
48
Sonae Sierra Brazil BV SARL and Subsidiaries
(ii) | Segment reporting of statement of income |
2014 Stub Period |
2013 | 2012 | ||||||||||
Shopping mall gross revenue by segment: |
||||||||||||
Development and management |
16,135 | 45,625 | 44,653 | |||||||||
Investment |
105,075 | 295,568 | 265,669 | |||||||||
Elimination of inter-segment revenue |
(8,596 | ) | (25,424 | ) | (26,890 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
112,614 | 315,769 | 283,432 | |||||||||
|
|
|
|
|
|
|||||||
Deductions: |
||||||||||||
Taxes |
(5,679 | ) | (20,968 | ) | (18,255 | ) | ||||||
Discounts and rebates |
(9,223 | ) | (19,047 | ) | (8,326 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
(14,902 | ) | (40,015 | ) | (26,581 | ) | ||||||
|
|
|
|
|
|
|||||||
Net operating revenue |
97,712 | 275,754 | 256,851 | |||||||||
|
|
|
|
|
|
|||||||
Shopping mall costs and general and administrative expenses by segment: |
||||||||||||
Development and management |
(12,497 | ) | (36,993 | ) | (39,530 | ) | ||||||
Investment |
(29,639 | ) | (69,784 | ) | (50,931 | ) | ||||||
Elimination of inter-segment cost |
8,597 | 25,424 | 26,890 | |||||||||
|
|
|
|
|
|
|||||||
Total |
(33,539 | ) | (81,353 | ) | (63,571 | ) | ||||||
|
|
|
|
|
|
|||||||
Adjusted operating profit |
64,173 | 194,401 | 193,280 | |||||||||
|
|
|
|
|
|
|||||||
Operating income before financial income (expenses) |
64,229 | 547,451 | 418,099 | |||||||||
Other tax expenses |
1,903 | 4,834 | 1,389 | |||||||||
Equity pick-up |
(1,003 | ) | (7,945 | ) | (4,821 | ) | ||||||
Changes in fair value of investment property |
| (344,318 | ) | (193,586 | ) | |||||||
Other operating income, net |
(956 | ) | (5,621 | ) | (27,801 | ) | ||||||
|
|
|
|
|
|
|||||||
Adjusted operating profit |
64,173 | 194,401 | 193,280 | |||||||||
|
|
|
|
|
|
The operations related to the development, management and investment of shopping malls are located only in Brazil. Therefore, the Company does not present analyses of revenues by geographical area.
26. | FINANCIAL INSTRUMENTS |
The Company and its subsidiaries conduct transactions involving financial instruments, all of which are recorded in balance sheet accounts, which are intended to meet their operating and financial needs.
These financial instruments are managed based on policies, definition of strategies and establishment of control systems, which are duly monitored by the management of the Company and its subsidiaries, with a view to maximize shareholder value and achieve a balance between debt and equity capital.
49
Sonae Sierra Brazil BV SARL and Subsidiaries
The Company and its subsidiaries main financial instruments are represented by:
a) | Cash and cash equivalents, restricted investments and escrow deposits: are classified as loans and receivable and their carrying amount is equivalent to the assets fair value |
b) | Trade accounts receivable and loans to condominiums: are classified as loans and receivables and recorded at the contracted amounts, which approximate market |
c) | Loans and financing: are classified as other financial liabilities and the fair value is determined using generally accepted pricing models based on analyses of discounted cash flows |
d) | Debentures: are classified as other financial liabilities (part of the debentures issued by the Company, subject to fair value hedge, is stated at fair value) |
e) | Domestic trade accounts payables: are classified as other financial liabilities and recorded at the contracted amounts, which approximate market |
As of December 31, 2013, the carrying amounts and fair values of the Companys and its subsidiaries financial instruments are as follows:
12/31/13 | ||||||||||||
Type |
Classification |
Fair value |
Carrying amount |
Fair value |
||||||||
Assets: |
||||||||||||
Cash and cash equivalents |
Loans and receivables | Level 2 | 429,347 | 429,347 | ||||||||
Trade accounts receivables |
Loans and receivables | Level 2 | 54,255 | 54,255 | ||||||||
Restricted investments |
Loans and receivables | Level 2 | 6,124 | 6,124 | ||||||||
Loans to condominiums |
Loans and receivables | Level 2 | 9,436 | 9,436 | ||||||||
Escrow deposits |
Loans and receivables | Level 2 | 11,677 | 11,677 | ||||||||
Liabilities: |
||||||||||||
Loans and financing |
Other financial liabilities | Level 2 | 571,663 | 571,663 | ||||||||
Debentures |
Other financial liabilities | Level 2 | 273,125 | 266,906 | ||||||||
Debentures |
Fair value through profit and loss | Level 2 | 58,035 | 58,035 | ||||||||
Domestic trade accounts payable |
Other financial liabilities | Level 2 | 49,812 | 49,812 | ||||||||
Derivatives |
Fair value through profit and loss | Level 2 | 1,828 | 1,828 |
The measurement of financial instruments is grouped into levels 1 to 3, based on the fair value hierarchy:
| Level 1 - quoted prices in active markets for identical assets and liabilities. |
| Level 2 - other techniques according to which all inputs with significant effects on the fair value are observable, either directly or indirectly. The fair values of the financial assets and financial liabilities included in the level 2 category above have been determined in accordance with generally accepted pricing models based on a discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparties. |
| Level 3 - techniques that use inputs with significant effects on fair value not based on observable market inputs. |
50
Sonae Sierra Brazil BV SARL and Subsidiaries
According to their nature, financial instruments may involve known or unknown risks, and the Companys judgment is important to the risk assessment. Thus, risks may exist with or without guarantees depending on circumstantial or legal aspects. The main market risk factors that may affect the Companys business are as follows:
26.1. | Credit risk |
The Company has a large customer base and constantly monitors trade receivables using internal controls, which limit the risk of default. The allowance for doubtful accounts is recognized in an amount considered by management as sufficient to cover probable losses on the collection of receivables, based on the following criterion: allowance of 100% for receivables past due over 120 days.
The credit risk related to cash and cash equivalents is limited as the counterparties are represented by banks, with a high rating assigned by international credit rating agencies.
26.2. | Price fluctuation risk |
The Companys revenue consists of rentals received from shopping mall tenants. In general, rentals are adjusted based on the annual fluctuation of IPCA, as provided in the lease agreements. The rental levels may vary according to adverse economic conditions and, consequently, the revenue level may be affected. Management monitors these risks in order to minimize impacts on its business.
26.3. | Interest rate risk |
Results from the portion of debt contracted with interest linked to the CDI, TR and IPCA and involves the risk of increase in financial expenses as a result of unfavorable rates.
The Company contracted non-speculative derivatives (swap) to partially hedge the inflation rate risk (IPCA) subject to interest of the 2nd series of debentures, as follows:
Fair value | Passive | |||||||||||||||||||||||||||||||
Initial | Maturity | Notional | Active | Passive | Active | index | ||||||||||||||||||||||||||
Type |
date | date | amount | index edge | index edge | index edge | edge | Amount | ||||||||||||||||||||||||
Swap |
08/22/13 | 02/15/19 | 54.500 | IPCA + 6,25 | % p.a. | CDI + 1,24 | % p.a. | 57,882 | 59,710 | (1,828 | ) | |||||||||||||||||||||
|
|
|
|
|
|
The aforementioned swap transaction was designated by the Company as a fair value hedge accounting transaction. The fair value of debentures, which is the subject matter of the swap transaction, corresponds to a gain of R$1,982 (see notes 13 and 22).
26.4. | Currency risk |
Trade receivables and trade payables are denominated in Brazilian reais and are not exposed to exchange fluctuations.
51
Sonae Sierra Brazil BV SARL and Subsidiaries
26.5. | Capital risk |
The Company and its subsidiaries manage their capital to ensure regular business continuity and, at the same time, maximize return for all stakeholders or parties involved in their operations, by optimizing debt and equity balance.
The Company and its subsidiaries equity structure consists of loans and financing and debentures detailed in notes 12 and 13, less cash and cash equivalents and consolidated shareholders equity (including capital, reserves and non-controlling interests, as mentioned in note 18).
26.6. | Liquidity risk management |
The Company and its subsidiaries manage the liquidity risk by maintaining proper reserves, bank and other credit facilities to raise new borrowings that they consider appropriate, based on the continuous monitoring of budgeted and actual cash flows, and the combination of the maturity profiles of financial assets and financial liabilities.
Liquidity risk and interest tables
The tables below detail the remaining contractual maturity of the Companys financial liabilities and the contractual payment periods. These tables were prepared in accordance with undiscounted cash flows of financial liabilities, based on the closest date when the Company and its subsidiaries should settle the corresponding obligations. The tables include interest and principal cash flows. As interest flows are based on floating rates, the undiscounted amount was based on the interest curves at year-end. Contractual maturity is based on the most recent date when the Company and its subsidiaries should settle the related obligations.
December 31, 2013 |
Weighted average effective interest rate |
Less than one month |
From one to three months |
From three months to one year |
Between one and five years |
More than five years |
Total | |||||||||||||||||||||
Loans and financing |
9.66 | % | 6,963 | 13,704 | 83,517 | 391,302 | 325,980 | 821,466 | ||||||||||||||||||||
Debentures |
11.68 | % | | 20,544 | 6,557 | 333,344 | 163,565 | 524,010 |
Sensitivity analysis on financial instruments
Considering the financial instrument previously described, the Company and its subsidiaries have developed a sensitivity analysis based on 25% and 50% fluctuations in the risk variable taken into consideration. These scenarios may impact the Company and its subsidiaries net income and/or future cash flows, as described below:
| Base scenario: maintenance of interest in the same levels as those as of December 31, 2013. |
| Adverse scenario: a 25% fluctuation of the main risk factor of the financial instrument compared to the level as of December 31, 2013. |
| Remote scenario: a 50% fluctuation of the main risk factor of the financial instrument compared to the level as of December 31, 2013. |
52
Sonae Sierra Brazil BV SARL and Subsidiaries
Assumptions
As described above, the Company believes that it is mainly exposed to the risks of fluctuation of the CDI, TR and IPCA, which is the basis to adjust a substantial portion of short-term investments and loans and financing. Accordingly, the table below shows the indices and rates used to prepare the sensitivity analysis:
Assumptions |
Base scenario |
Adverse scenario |
Remote scenario |
|||||||||
CDI fluctuation: |
||||||||||||
Short-term investments |
10.34 | % | 7.76 | % | 5.17 | % | ||||||
Loans, financing, debentures and swap derivatives |
10.34 | % | 12.93 | % | 15.51 | % | ||||||
TR fluctuation: |
||||||||||||
Loans, financing and debentures |
0.20 | % | 0.25 | % | 0.30 | % | ||||||
IPCA fluctuation: |
||||||||||||
Debentures |
5.76 | % | 7.20 | % | 8.64 | % | ||||||
Swap derivatives |
5.76 | % | 4.32 | % | 2.88 | % |
Management analysis
Consolidated | ||||||||||||||||
Risk factor |
Financial instrument |
Risk | Base scenario (*) |
Adverse scenario |
Remote scenario |
|||||||||||
Short-term investments |
Interest rate | Decrease in CDI rate | 43,717 | 32,809 | 21,859 | |||||||||||
Loans |
Interest rate | Increase in CDI rate | 2,282 | 2,852 | 3,423 | |||||||||||
Loans |
Interest rate | Increase in TR rate | 860 | 1,075 | 1,290 | |||||||||||
Debentures |
Interest rate | Increase in CDI rate | 9,986 | 12,343 | 14,812 | |||||||||||
Debentures |
Interest rate | Increase IPCA rate | 11,779 | 14,545 | 17,454 | |||||||||||
Swap derivatives |
Inflation index and interest rate |
Increase in CDI rate and Decrease in IPCA |
2,898 | 5,282 | 7,667 |
(*) | The Companys base scenario is comprised of interest estimated for the next 12-month period. |
The Companys management understands that the market risks originated from other financial instruments are immaterial.
53
Sonae Sierra Brazil BV SARL and Subsidiaries
27. | INSURANCE |
As of December 31, 2013, insurance is as follows:
Insured amount |
||||
Civil liability (shopping mall operations) |
213,684 | |||
Fire |
1,765,725 | |||
Loss of profits |
250,611 | |||
Windstorm/smoke |
117,276 |
28. | MANAGEMENT COMPENSATION |
For the 2014 Stub Period and during the years ended December 31, 2013 and 2012, expenses on management compensation are broken down as follows:
Consolidated | ||||||||||||
2014 Stub Period |
12/31/13 | 12/31/12 | ||||||||||
Payroll and related taxes |
943 | 3,639 | 3,825 | |||||||||
Variable compensation |
660 | 2,012 | 1,928 | |||||||||
Benefits |
103 | 364 | 335 | |||||||||
|
|
|
|
|
|
|||||||
Total |
1,706 | 6,015 | 6,088 | |||||||||
|
|
|
|
|
|
These amounts are recorded in line item Cost of rents and services, in the statement of income.
The amounts referring to the compensation of key management personnel are represented by short and long-term benefits, substantially corresponding to management fees and sharing profit (including performance bonuses). The Company and its subsidiaries do not pay post-employment benefits or share-based compensation.
As of December 31, 2013, the balance of line item Accrual for variable compensation, totaling R$1,469, stated in noncurrent liabilities, includes only variable compensation (performance bonuses) awarded to the subsidiary Sonae Sierra Brasil S.A.s officers.
Additionally, as approved at the annual General and Extraordinary Shareholders Meeting (AGO/E) held on April 25, 2013, the overall compensation to Directors and Officers of the subsidiary Sonae Sierra Brasil S.A. in 2013 is R$10,000.
54
Sonae Sierra Brazil BV SARL and Subsidiaries
29. | ADDITIONAL DISCLOSURES ON CASH FLOWS |
The Company and its subsidiaries conducted the following noncash transactions:
Consolidated | ||||||||||||
2014 Stub Period |
12/31/13 | 12/31/12 | ||||||||||
Capitalized interest in properties for investment in construction (see notes 12 and 14) |
| 13,573 | 16,920 | |||||||||
Purchase of land (see note 10) |
| | 63,701 | |||||||||
Increase in trade payables due to properties for investment in construction |
| 28,360 | 11,171 | |||||||||
Transfer of construction in progress and advances to suppliers of property and equipment and intangible assets |
138 | 3,533 | 3,302 | |||||||||
Barter transaction of Boulevard Londrina Shopping |
| 29,910 | |
30. | COMMITMENTS |
With the enactment of Law 12024, dated August 27, 2009, which describes the tax treatment applicable to income earned by real estate investment funds, the administrator of Fundo de Investimento Imobiliário I, Banco Ourinvest S.A., stopped retaining IRRF on income paid to a certain shareholder headquartered in Brazil. In view of the inquiry made by Banco Ourinvest S.A., to the Federal Revenue Service on the content and scope of this law, Sierra Investimentos committed to an agreement entered into with this bank, dated October 29, 2009, to make a short - term investment under custody to cover a possible collection of the tax that is not being withheld. At the same date, Parque D. Pedro 1 BV/SARL (a Luxembourg company belonging to the same corporate group of the Company) and Sierra Investimentos, entered into an agreement under which Parque D. Pedro 1 BV/SARL agrees to reimburse Sierra Investimentos for any type of risk arising from the nonpayment of tax by Banco Ourinvest S.A.
As of May 13, 2010, the federal government filed an appeal against the federal lower court decision. On June 11, 2010, Banco Ourinvest S.A. filed its counter-arguments and currently awaits the appellate court decision.
As of December 31, 2013, subsidiary Sierra Investimentos has R$833 receivable from Banco Ourinvest S.A., as a result of the agreement entered into on October 29, 2009. These receivables are classified in line item Other receivables, in noncurrent assets (see note 5). In addition, the subsidiary Sierra Investimentos has a balance of R$6,124 in restricted investments, stated in noncurrent assets.
55
Sonae Sierra Brazil BV SARL and Subsidiaries
31. | SUPPLEMENTAL INFORMATION - RECONCILIATION OF EQUITY AND NET INCOME BETWEEN U.S. GAAP AND IFRS, AS ISSUED BY IASB |
The Company presents in this note the reconciliation of equity and net income between the amounts calculated in accordance with the U.S. GAAP and IFRS for the 2014 Stub Period and for the years ended December 31, 2013 and 2012 as follows:
Reconciliation
Reconciliation of shareholders equity as of December 31, 2013 and 2012:
Consolidated | ||||||
Note | 12/31/13 | |||||
Shareholders equity as reported under IFRS |
2,951,605 | |||||
Adjustment of the fair value of investment property |
(a) | (3,946,171 | ) | |||
Effect of cost of investment property |
(a) | 2,300,796 | ||||
Effect of depreciation of investment property |
(a) | (186,360 | ) | |||
Write-off of prepaid commission expenses |
(c) | 10,943 | ||||
Campo Limpo Empreendimentos e Participações Ltda. |
(d) | (22,538 | ) | |||
Other differences |
(1,874 | ) | ||||
Effect of deferred income tax and social contribution |
(e) | 505,141 | ||||
|
|
|||||
Shareholders equity under U.S. GAAP |
1,611,542 | |||||
|
|
Reconciliation of income for the 2014 Stub Period and for the years ended December 31, 2013 and 2012:
Consolidated | ||||||||||||||
Note | 2014 Stub Period |
12/31/13 | 12/31/12 | |||||||||||
Net income as reported under IFRS |
36,676 | 357,409 | 304,452 | |||||||||||
Adjustment of the fair value of investment property |
(a) | | (344,318 | ) | (193,586 | ) | ||||||||
Effect of depreciation |
(a) | (16,899 | ) | (36,596 | ) | (26,486 | ) | |||||||
Interest capitalized on investment property under construction |
(b) | 625 | 29,213 | 24,601 | ||||||||||
Write-off of prepaid commission expenses |
(c) | (1,396 | ) | 416 | (2,198 | ) | ||||||||
Campo Limpo Empreendimentos e Participações Ltda. |
(d) | (108 | ) | (5,064 | ) | (2,312 | ) | |||||||
Effect of deferred income tax and social contribution |
(e) | (651 | ) | 128,013 | 51,096 | |||||||||
Gain on sales of investment properties |
(f) | | | 174,527 | ||||||||||
Income tax and social contribution related to gain on sales of investment properties |
(f) | | | (60,073 | ) | |||||||||
Other differences |
(251 | ) | (1,271 | ) | 3,496 | |||||||||
|
|
|
|
|
|
|||||||||
Net income under U.S. GAAP |
17,996 | 127,802 | 273,517 | |||||||||||
|
|
|
|
|
|
56
Sonae Sierra Brazil BV SARL and Subsidiaries
Summary of main differences between U.S. GAAP and IFRS:
(a) | Investment properties |
Under IFRS, investment properties are measured initially at their cost, including transaction costs. After initial recognition, investment properties are measured at fair value. The gain or loss from the change in fair value of investment properties in operation are recognized in profit or loss for the period in which it arises.
Under U.S. GAAP, investment properties are carried at acquisition cost, including borrowing costs. Depreciation is calculated under the straight-line method based on estimated useful lives of the assets.
(b) | Interest capitalized on investment property under construction |
Under IFRS, income earned on the temporary investment of actual borrowings is offset against the actual borrowing costs to be capitalized.
Under U.S. GAAP, income earned on the temporary investment of actual borrowings is not generally deducted from the amount of borrowing costs to be capitalized.
(c) | Write-off of prepaid commission expenses |
Under U.S. GAAP, the Company recorded costs on commissions paid on store rentals as prepaid expenses, which are amortized over a five-year period taking into account the start and the termination of the lease agreements.
Under IFRS, these expenses and costs do not meet the definition of an asset; therefore, are recognized as operating costs when incurred.
(d) | Campo Limpo Empreendimentos e Participações Ltda. |
The associate Campo Limpo Empreendimentos e Participações Ltda. also prepares financial statements in accordance with IFRS, and, as such, applies the policies described in items (a) and (b) above related to adjustment of the fair value of investment property. This amount represents the impact of these two adjustments in consolidated net income arising from the equity method valuation.
(e) | Deferred income taxes |
The deferred income taxes reconciling item represents the tax effect of all the GAAP adjustments discussed in the reconciliation table above.
(f) | Gain on sales of investment properties |
Under IFRS, investment properties are measured initially at their cost, including transaction costs. After initial recognition, investment properties are measured at fair value.
Under U.S. GAAP, investment properties are carried at acquisition cost, including borrowing costs less accumulated depreciation.
Therefore, the GAAP adjustment corresponds to the different results obtained by assets measured at fair value in IFRS and assets measured at cost of acquisition, deducted from accumulated depreciation in U.S. GAAP.
57
Sonae Sierra Brazil BV SARL and Subsidiaries
Breakdown of investment property under U.S. GAAP as of December 31, 2013
12/31/13 | ||||||||||||||||
% | Cost | Depreciation | Net | |||||||||||||
Land |
| 267,970 | | 267,970 | ||||||||||||
Building |
2.2 | 1,787,518 | (133,168 | ) | 1,654,350 | |||||||||||
Furniture and fixtures |
10 | 238,568 | (53,192 | ) | 185,376 | |||||||||||
|
|
|
|
|
|
|||||||||||
Subtotal |
2,294,056 | (186,360 | ) | 2,107,696 | ||||||||||||
Construction in progress |
| 6,740 | | 6,740 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
2,300,796 | (186,360 | ) | 2,114,436 | ||||||||||||
|
|
|
|
|
|
32. | APPROVAL OF THE FINANCIAL STATEMENTS |
The financial statements were approved by the Executive Committee and authorized for issue on March 12, 2015.
58
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