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In Review 2004

passionate about innovation

PORTUGALPORTOLUGAR DO ESPIDO,

VIA NORTE, 4470 MAIA

TELEPHONE: +351 22 948 7797

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LISBOARUA AMÍLCAR CABRAL, 23

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SPAINC/ CONDE DE ARANDA, 24,

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ITALYCORSO MAGENTA 85

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GERMANYKENNEDYDAMM 55

40476 DÜSSELDORF

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GREECECHATZIYIANNI MEXI,

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NETHERLANDSPOLARISAVENUE, 61

2132 JH HOOFDDORP

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BRAZILRUA GOMES DE CARVALHO,

1327, 3º, CONJ.32

VILA OLÍMPIA, SÃO PAULO – SP

CEP: 04547 – 005

TELEPHONE: +55 11 3845 5399

FAX: +55 11 3845 4522

www.sonaesierra.com

Son

ae Sierra In R

eview2004

SONAE SIERRA IS A SPECIALIST INTERNATIONALCOMPANY WHICH INVESTS IN, DEVELOPS ANDMANAGES PROPERTIES IN THE SHOPPING ANDLEISURE CENTRE SECTOR.

IN ALL THAT WE DO, WE STRIVE TO COMBINEIMAGINATION AND INTEGRITY TO DELIVERINNOVATIVE RESULTS.

Passionate about Inn

ovation

Our strategy for growthSonae Sierra aims to become one of the leading European companies in the shoppingand leisure sector.

Currently operating in Portugal, Spain, Italy, Germany, Greece and Brazil, our strategyfor growth is based on the innovative deployment of our specialist skills organisedaccording to a successful business model.

The key to the model’s success lies in its integrated structure, which reflects the threeoperational strands of our business: investment, development and management.

Sonae Sierra also places great importance on the value of partnerships. By workingwith both international investors and local partners, we are able to constantly developour financial strength, our product qualities and market knowledge and swiftly act inresponse to every new business opportunity.

Our sector focusSonae Sierra chooses to focus on the shopping and leisure centres sector of theproperty industry. Our new name reflects this policy. By moving away from thegeneralisations associated with the name “Imobiliária” – which, in most Latin-rootedlanguages, means “real estate” in the broadest sense – we have emphasised theprecision of our focus and repositioned ourselves as an international organisation.

With our emphasis on specialisation, our investment focus takes a long-term view.While we prefer to own the assets we develop, making it possible for us to foster theirprogression, we also invest in existing shopping centres which we know we can addvalue to through redevelopment and innovative active management.

The financial stability which stems from this policy, coupled with our creative approachto design and construction, has earned us an enviable reputation as developers ofinnovative products of quality.

0 Strategy

2 Highlights of 2004

4 Main Events of 2004

6 CEO’s Statement

8 Partnerships

10 Operational Review12 Sierra Investments20 Sierra Developments30 Sierra Management38 Sonae Sierra Brazil

44 Consolidated Accounts

50 Corporate Responsibility

54 Board of Directors

56 The Future

56 Prospects

Sonae Sierra In Review 2004Highlights of 2004

2004 saw Sonae Sierra consolidate its position in the shopping and leisure centres sector. During the year, we opened four new centres in Spain and another in Brazil, where we alsocompleted the extension of an existing centre.

Highlightsof 2004

EBITDA increased from €98.07 million to €107.64 million, growth of 9.76%

NAV per share increased from €29.16 to €32.60 a growth of 11.80%

Total NAV of €1,060 million at year end

Net Profit after Minorities of €82.25 million

Asset gearing of 28.8%

Interest cover of 2.67

5 new shopping centres plus one extension inaugurated in 2004

7 new shopping centres under construction at year end

1.8 million m2 of GLA under management in Portugal, Spain, Italy and Brazil

A team of 667 people with 11 different nationalities, operating in 6 countries

Sonae Sierra In Review 2004Highlights of 2004

3

Performance Indicators

1997 1998 1999 2000 2001 2002 2003 2004

Real Estate NAV as of 31 Dec (€ million) 379 459 643 752 934 1,037 9481 1,060

Real Estate NAV as of 31 Dec per share (€) 10.11 12.24 17.15 20.05 24.9 27.67 29.16 32.60

GLA owned in operating centres (000’s m2) 333 413 563 584 790 1,140 1,203 1,362

GLA under management (000’s m2) 550 625 893 959 1,128 1,517 1,564 1,839

Number of tenant contracts under management 1,747 2,050 3,162 3,450 3,949 5,089 5,399 6,134

Consolidated EBITDA – Portuguese GAAP (€ million) 12.0 12.3 54.1 63.4 n.a n.a n.a n.a

Consolidated EBITDA – IAS (€ million) n.a n.a n.a 55.1 73.8 95.5 98.1 107.6

Consolidated Net Profit – Portuguese GAAP (€ million) 4.6 15.2 22.6 25.6 n.a n.a n.a n.a

Consolidated Net Profit – IAS (€ million) n.a n.a n.a 63.0 120.9 144.4 208.72 82.3

Non-audited accounts1 The Company acquires own shares in the amount of €150 million2 The Company sold 49.9% of Sierra Fund to third party investors

Growth (as % of previous year)

1998 1999 2000 2001 2002 2003 2004

Real Estate NAV as of 31 Dec per share 21% 40% 17% 24% 11% 5% 12%

GLA (m2) owned in operating centres 14% 36% 4% 35% 44% 5% 13%

GLA (m2) under management 14% 43% 7% 18% 35% 3% 18%

Number of tenant contracts under management 17% 54% 9% 15% 29% 6% 14%

Return on equity

12.8%+86%

Open MarketValue (OMV) of

€3,341million

+17%

NAV pershare of

€32.6+11.8%

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Sonae Sierra In Review 2004The Main Events of 2004

2004 was a significant year for our company.Operating under our former name of SonaeImobiliária, we achieved a high level ofgrowth. Now, with a new name and a newimage, we aim to sustain our activity growthas an innovative leader in our sector.

Unprecedented growth

The opening of four new high qualityshopping centres in Spain, and anotherin Brazil, in the same year is an almostunparalleled accomplishment in our sector.Our ability to undertake and conclude asignificant expansion of Shopping Penha in

Brazil is a further demonstration of ourstrength as a company.

Much of this strength is derived from theunderlying value of our real estate assetswhich, since the closing of the Sierra Fundin 2003, has been augmented by theconsequent increase in the value of theirfinancial returns. The growth we haverecorded in this area is the result of the skilledprofessionalism of all those who work inSierra Investments, our asset managementand investment division.

Sierra Developments – the division whichoversees all our developments in the countrieswe operate in, with the exception of Brazil –owes much to the efforts of SierraInvestments. Backed by the financial strengththey have secured, our team in SierraDevelopments has brought enthusiasm andinnovation to their work. Their efforts haveresulted in the opening of four new centres inSpain which will do much to help us achieveour aim of becoming one of the leaders inour field in Europe. The progress we aremaking on development projects in Germanyand Italy will also further this ambition.

The Main Events of 2004

Apr 04Opening of Avenida M40in Madrid, Spain.

Mar 04Opening of Dos Maresin Murcia, Spain.

Apr 04Opening of Boavista Shoppingin São Paulo, Brazil.

Sonae Sierra In Review 2004The Main Events of 2004

5

Enlarged Portfolio

The opening of Spain’s new centres has alsosignificantly enlarged our portfolio of managedshopping centres in that country. Taking theportfolio as a whole, Sierra Management nowhas in excess of 1.5 million m2 of GLA(Gross Lettable Area) under management,in Portugal, Spain and Italy. In addition tothe centres developed and owned by SonaeSierra, this division also manages propertiesdeveloped by other companies, such as theMoncalieri (Torino), and Biccoca (Milan),centres in Italy, which were developed byPirelli Real Estate and brought into the

portfolio during 2004. While Portugal is stillthe most important country we operate in,Sierra Management is already preparing totake responsibility for the new centresopening in Germany and Greece.

As an independent business, Sonae SierraBrazil remains committed to its goal ofbecoming one of Brazil’s top companies inits sector. The opening of the new BoavistaShopping in a prime location in São Paulodemonstrates this commitment. The Brazilianlong-term debt market may create difficultiesfor the property industry as a whole, but webelieve Sonae Sierra Brazil’s innovative

approach to partnerships and theirimaginative development concepts willsustain their growth in its sector.

We know that, in the future, we will have towork harder to sustain the overall pattern ofgrowth achieved in 2004. But that is our aim.

In line with this ambition, we spent muchof 2004 engaged in a comprehensive reviewof our brand identity. Working closely withFutureBrand, the global branding firm of theInterpublic Group, we have developed a freshsense of ourselves; one based on our inherentstrengths of imagination and integrity.

Sept 04Opening of Luz del Tajoin Toledo, Spain.

Oct 04Opening of the expansion of ShoppingPenha in São Paulo, Brazil.

Nov 04Opening of Zubiarte in Bilbao,Spain.

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Sonae Sierra In Review 2004CEO’s Statement

CEO’s Statement

Passionate aboutSonae Imobiliária began trading in 1989and completed the first of its own shoppingcentre developments in 1991. Since then, ourpioneering concepts have been translated intoinnovative shopping and leisure centres whichhave fostered our reputation as one of themost dynamic companies operating in ourtarget markets.

Today, under the new name of Sonae Sierra,we maintain a focused and coherent strategyin all our countries of choice: Portugal, Spain,Germany, Italy, Greece and Brazil.

In all that we do we are passionate aboutinnovation. From the management of ourown administrative systems to the design andconstruction of retail developments, we seekto achieve a combination of imagination andintegrity which leads to excellent results.

Rapid growth in busy year

2004 was a busy year for Sonae Sierra. Notonly did we sustain the pace of our overalldevelopment by opening five new shoppingcentres – four in Spain and one in Brazil –we also completed a very large extensionof Shopping Penha in Brazil.

This rate of growth, which only matchesour year-on-year ambition, is the result ofconsiderable hard work of our staff. It alsoowes much to the high levels of commitmentwe have enjoyed from our developmentpartners.

Throughout the company, we know we mustmaintain this pattern of growth if we are toachieve our long-term objectives and becomeone of the leading players in the investment,development and management of shoppingand leisure centres in our target markets.

Mixed economic fortunes

While 2004 was clearly a rewarding year forour company, our progress is all the moresatisfactory for having been achieved againsta background of mixed economic fortunesin the countries we operate in.

Private consumption and consumer spendingare the lifeblood of our business. When theyare strong, they feed our tenants’ optimism.When they are weak, they foster caution.

In Germany, private consumption was at acomparatively low level throughout the year.In Spain, consumption remained stable whichhelped us achieve our ambition of becomingone of the top companies in our sector.

The business climate was also stable in Italyand Greece, where we shall be breaking newground in September 2005 when we openthe country’s first modern shopping centre.

We also saw some economic progress inPortugal, where we have achieved a verystrong market position, and in Brazil, wherethe exchange rate has become morefavourable and rising consumer spendinggives us cause for optimism.

Good year for Sierra Fund

2004 was a good year for the Sierra Fund,with results slightly above those weforecasted in terms of returns on investment.

In its first full year of operation, the Fund hasmade a strong contribution to our overallactivities, consolidating the financial strengthneeded to fund both new acquisitions and therefurbishment and expansion of existing centres.

I am pleased to report that all ourdevelopments in our pipeline are progressingwell, and that our relations with theinvestment community have been enhancedby the introduction of this new Fund.

New safety and health programme

We have always aspired to the highestpossible standards of safety and health acrossour entire group. During 2004, we establisheda new Safety & Health Office that focuses onthese disciplines on a group-wide basis andinvolves most of our stakeholders.

This new department co-ordinates theservices provided by Dupont Safety Resourceswhich fall within the scope of our Personæproject, a joint venture between ourselvesand Dupont. Personæ’s mission is to developa zero accident culture within our workingenvironment, ensure responsible behaviourthrough commonly-adopted values, andleverage operational disciplines with theaim of achieving productivity and qualityimprovements.

The Personæ project is a four year programmedesigned to raise our safety and healthstandards to the highest level by 2008.

Sonae Sierra In Review 2004CEO’s Statement

7

InnovationAn innovative image

This review of our operations is the firstmajor document to be published since theintroduction of our new name and newidentity. As such, it reflects a major stepforward in our development as a company.

Our new image is the result of more thana year’s intensive examination of our ownbusiness processes and the ways in whichour activities and personality are bothcommunicated to and perceived by ouraudiences in the marketplace.

We believe our new name will do much toremove any ambiguity arising from the wayin which ‘Imobiliária’ is frequently associatedwith Portuguese property in its very widestsense. Our new, more international name willmake it easier for us to communicate moreprecisely the exact focus of our business.

The new name also signals a “new start” forour company. It provides fresh impetus for ourall activities, from the way our accountingdepartment operates to the way we dobusiness with our partners and develop newconcepts for construction.

It also gives us a new vehicle for theexpression of our central driving force:our passion for investing in, developing andmanaging innovative shopping and leisurecentres specifically designed for the peoplewho visit them.

The challenges ahead

With new-found energy stemming from ournew name and new identity, the new yearsees us facing a number of major challengesin all the countries we operate in.

In Greece we look forward to the openingof the country’s first-ever modern shoppingcentre, our first development there and onewhich will test our skills and capabilities asboth innovators and managers.

In Germany we expect to face continuingcompetition from established companies inour sector as we seek to improve our standingin the market.

In Italy we must sustain our momentum inan industry which is undergoing considerablechange as the arguments for and againstshopping centres are discussed at both acentral and local level.

Our most important challenge, however,is the human factor.

As a company operating in six differentcountries, we already employ people with11 different nationalities. This gives us a globalperspective backed by local experience.However, if we are to maintain the pattern ofgrowth achieved during 2004, we must recruitmore highly talented people who want to workwith us. We must also recruit people who wantto learn how we do business, so that they canhelp us achieve our goals in the future.

With the right resources – both human andfinancial – I am confident we shall maintain themomentum established during the past year.

Álvaro Portela

Chief Executive Officer

Our new name, Sonae Sierra, givesus a new vehicle for the expression ofour central driving force: our passionfor innovation in all that we do.

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Sonae Sierra In Review 2004Partnerships

PartnershipsCentres in Operation Partners Country Sonae Sierra

ViaCatarina, Porto, Portugal ING Real Estate Netherlands 50%Centro Colombo, Lisbon, PortugalCentro Vasco da Gama, Lisbon, PortugalGrancasa, Zaragoza, SpainMax Centre, Bilbao, SpainValle Real, Santander, SpainZubiarte, Bilbao, Spain

La Farga, Barcelona, Spain ING Real Estate Netherlands 25%

GaiaShopping, Porto, Portugal CNP Assurances (25%) France 50%Arrábida Shopping, Porto, Portugal Ecureuil Vie (25%) France

CascaiShopping, Cascais, Portugal Pan European (25%) U.K. 50%Trans European II (25%) U.S.AMultiplan (development) Brazil

NorteShopping, Porto, Portugal TIAA-CREF U.S.A 50%

MadeiraShopping, Funchal, Portugal Estevão Neves Portugal 50%

Parque Atlântico, Ponta Delgada, Portugal NSL Group Portugal 50%

Plaza Mayor, Malaga, Spain Castle Management (development) U.K. 100%

Avenida M40, Madrid, Spain Eroski Group Spain 60%

Luz del Tajo, Toledo, Spain Eroski Group Spain 65%Dos Mares, Murcia, Spain

Coimbra Retail Park, Coimbra, Portugal Miller Developments U.K. 50%

Estação Viana, Viana do Castelo, Portugal Estação Shopping (development) Portugal 100%

Parque Principado, Oviedo, Spain LAR Grosvenor Spain 50%

Parque D. Pedro, São Paulo, Brazil Enplanta Engenharia Brazil 97.9%

Boavista Shopping, São Paulo, Brazil Enplanta Engenharia Brazil 97.5%

Centres under Development Partners Country Sonae Sierra

Setúbal Retail Park, Setúbal, Portugal Miller Developments U.K. 50%

Plaza Éboli, Madrid, Spain Eroski Group Spain 65%

Plaza Mayor Shopping, Malaga, Spain Castle Management U.K. 75%

Aegean Park, Athens, Greece Charagionis Group Greece 50%

Mediterranean Cosmos, Thessaloniki, Greece Charagionis Group (19.95%) Greece 19.95%Lamda Developments (60.1%) Greece

Freccia Rossa, Brescia, Italy AIG (40%) U.S.A 50%Coimpredil (10%) Italy

Alexa, Berlin, Germany Foncière Euris France 50%

Other Partners Country Sonae Sierra

Sierra Charagionis – investment, development and management of shopping centres, Charagionis Group Greece 50%Greece

Sierra Enplanta – investment, development and management of shopping centres, Brazil Enplanta Engenharia Brazil 50%

Mediterranean Cosmos – Management of shopping centres, Greece Charagionis Group (37.5%) Greece 37.5%Lamda Group (25%) Greece

SEgest – Management of shopping centres, Italy Espansione Commerciale Italy 50%

Sierra Fund Stichting Pensioenfonds ABP Netherlands 50.1%Caisse des Dépôts et Consignations EP FranceCNP Assurances FranceEcureuil Vie FranceTIAA-CREF USA

Sonae Sierra In Review 2004Partnerships

9

Sonae Sierra has continued itspolicy of developing partnershipsin all the countries in whichwe operate.

Centro Vasco da Gama

Location: Lisbon, PortugalPartner: ING Real Estate

Luz del Tajo

Location: Toledo, SpainPartner: Eroski Group

CascaiShopping

Location: Cascais, Portugal

Partners: Pan European,

Trans European II and

Multiplan (development)

Parque Atlântico

Location: Ponta Delgada, PortugalPartner: NSL Group

Parque D. Pedro

Location: São Paulo, BrazilPartner: Enplanta Engenharia

NorteShopping

Location: Porto, PortugalPartner: TIAA-CREF

Sonae Sierra In Review 2004Operational Review

SIERRAINVESTMENTSOur asset management and investmentactivities succeeded in sustaining thegrowth of our rental income during2004, and secured a rise in theunderlying value of its shopping andleisure centres.


2004 WAS A POSITIVE YEAR FORSONAE SIERRA. OPERATING IN MIXEDMARKET CONDITIONS, WE SUSTAINED OURFOCUSSED STRATEGY FOR GROWTH ACROSSALL OUR CORE ACTIVITIES OF INVESTMENT,DEVELOPMENT AND MANAGEMENT.

SIERRADEVELOPMENTS2004 saw our development division open an unprecedented number ofnew shopping centres: four in Spain. Further new developments have also been embarked on in Portugal,Germany and Italy.

SIERRAMANAGEMENTBy the end of 2004, Sierra Managementhad a total of 1.58 million m2 GrossLettable Area (GLA) of shopping centres,retail parks and smaller gallerias undermanagement in Portugal, Spain and Italy.2005 will see the commencement ofthese activities in Germany and Greece.

SONAE SIERRABRAZILOur operations in Brazil continued to progress during 2004, with salesincreasing in most of our shoppingcentres by more than 18%. Highlights of the year included the opening ofthe Boavista Shopping and the largeexpansion of Shopping Penha,both in São Paulo.


Sale of Sintra Retail Park (Sintra, Portugal)

Contribution of Parque Atlântico (Azores, Portugal) to Sierra Fund

Acquisition of 25% of Parque Principado (Oviedo, Spain)

Significant refurbishment in La Farga (Barcelona, Spain)

Increase of €429 million in the portfolio market value, a growth of 16%

SIERRAINVESTMENTS

We have continued toconsolidate and enhance thecompany’s assets by capitalisingon the introduction of the SierraFund and pursuing new investmentopportunities in Germany and Italy.


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“Our proactive approach to assetmanagement ensures we havethe necessary capital required tomaintain and market our centres,attract new and innovative tenantsand thus sustain our rental income.”

Business activities

Sierra Investments is responsible for thecompany’s investment business in Europe.Its objective is to actively manage both SonaeSierra’s capital and all the company’s operatingshopping and leisure centres and to increasetheir asset value.

The division contributes to the company’sresults through a combination of rentalincome and the rising market valuesattributable to its shopping centres. It alsoprovides income-bearing asset managementservices to Sonae Sierra’s co-investors.

Acting on behalf of the company, the divisiontakes a long-term view, preferring to investin assets developed by Sierra Developments.It does, however, also invest in selectedassets which have been chosen for thepotential increase in their value throughgood control, active management andexpansion/refurbishment potential.

Sierra Investments holds 50.1% of theSierra Fund, thus maintaining its positionas co-owner and manager of the Fund’sunderlying assets.

2005 Prospects

After a year of reduced personal consumerconfidence in Portugal, there are some signsof recovery in this market, while consumerconfidence remains stable in Spain. There ismore investment money available in Europeand the demand for top quality shopping andleisure centres remains high. This will certainlycontinue to have an impact on yields, whichmakes us confident we can sustain ourcurrent levels of return and capital growth.

Our aim is to further improve theperformance of the Sierra Fund and tobroaden the scope of our portfolio throughselected acquisitions in Germany and Italy.

Ana Guedes Oliveira

Sierra Investments, Managing Director

Luz del Tajo

14


SIERRAINVESTMENTS – 2004 Performance

With an increase in rental income of 12% anda further increase of 16% in the asset value ofour operating properties in Spain and Portugal,we have exceeded our forecasts for 2004.

The main events of the year have been theacquisition from Sierra Developments of thefour new shopping centres – Dos Mares(Murcia), Avenida M40 (Madrid), Luz del Tajo(Toledo) and Zubiarte (Bilbao) – which openedin Spain during 2004, and the purchase of25% of Parque Principado (Oviedo, Spain)which was acquired from the Whitehall Fundand increases Sierra Investments’ shareholdingin this asset to 50%. After achieving a certainnumber of operating criteria, these assets plusEstação Viana (Viana do Castelo, Portugal)will be transferred into the Sierra Fund.Together with Parque Atlântico (PontaDelgada, Portugal) which has already beentransferred to the Sierra Fund, these newassets will considerably enhance the Fund’sportfolio value.

Having taken the view that retail parks are aless attractive long-term investment in Portugalthan shopping centres, we also disposed of thecompany’s Sintra Retail Park (Sintra, Portugal).Retail parks of this kind are a comparativelynew concept in Portugal and have yet tobecome popular with consumers. They arenevertheless attractive to some specialisedtenants. This situation currently offers littlescope for flexibility and makes constructiveasset management less rewarding.

As a result, we have shifted our strategicfocus and will, so far as Portugal is concerned,concentrate our financial resources onshopping centres.

The shopping centre La Farga (Barcelona, Spain)went through a significant refurbishment inorder to achieve a new position in the marketas a convenient neighbourhood shoppingcentre directed to its primary catchment area.The centre had been affected by increasingcompetition, and only with a significantturnaround in terms of mix/tenants andrestyling would it be possible to invert thenegative trend. The restyling of the centreimproved internal flows and communicationbetween floors, allowed the re-anchoring withthe leading fashion operator Zara, and createda new, refreshing image and decoration todrive visitors and sales growth.

Property values increased

The decrease in cap rates and discount ratesin Portugal had a positive influence on ourvaluations during 2004.

At the end of December 2004, the valuationswe received from Cushman & Wakefield/Healey& Baker for the standing investments in ourportfolio had increased by 5.4 % whencompared with the same values at the endof December 2003. This is the result of aportfolio increase in value of 5.2% in Portugaland 6.0%in Spain, mainly due to the decreasein cap rates and discount rates in almost allour centres.

Our aim is to sustain this performance andachieve an increase in our rental incomethrough effective marketing, the refurbishmentof centres when they show the natural signsof wear and tear, and the expansion of othercentres when the market conditions arefavourable.

We also aim to reduce our operational costs,particularly through the introduction ofefficiency and energy and water savingprogrammes, as well as a reduction ofinsurance costs achieved through theeconomies of scale. Our plans for optimisingour financial and fiscal performance include asystematic risk management approach.

NorteShopping


15

Economic Factors

The general economic situation in Portugal,which is still our most important market,had an impact on local consumer confidenceduring the year. As a result, some tenantstook the prudent view and postponed someof their business plans. Nevertheless, despitethe slight stagnation in the market asoperators come to terms with the intricaciesof the new legislation affecting the pace ofstore openings in Portugal, we have recordeda satisfactory level of income growth.

Portugal’s staging of Euro 2004 had agenerally negative impact on our sales, otherthan in those centres more exposed to foreigntourists, where the impact was positive.

Signs of recovery

In Portugal, the market sentiment appearsincreasingly optimistic, with an improvedeconomic outlook. There were some signs

of economic recovery and of increasingconsumer confidence, which will certainlyhave a positive impact on the retail sector.

In Spain, the outlook for the market is fora slowdown in the rate of rental growth,although the sector is expected to remainactive, notably on the investment side. Therecent downward shift in yields possiblymeans that a further short-term fall isunlikely, although there is still room for agreater convergence between shoppingcentre yields and those in the high street overthe longer term.

With more money available in Europe, weanticipate an increased demand for highquality shopping centres, which should beto our benefit.

Our objective is to increase our presence asan investor in our target markets, and thusimprove our rental income, either by theacquisition of operating assets which offer

scope for development through expansionor refurbishment, improved management orthrough joint ventures.

Occupancy Rate

2004 2003

Portugal 97% 96%

Spain 95% 91%

The value of our tenants

The quality of our shopping centresguarantees our status as preferred partner formany retailers. Having taken space in ourdevelopments, they know they will share inour success.

Rents & Sales of owned shopping centres

Fixed rents Variable rents Total rents % 04/03 rents Sales % 04/03 sales2004 2003 2004 2003 2004 2003 total like-for-like 2004 2003 total like-for-like

Portugal 145,419 130,262 10,927 11,785 156,346 142,046 10.1% 5.9% 1,784,537 1,669,326 6.9% 3.6%

Spain 45,705 39,107 1,845 998 47,550 40,105 18.6% 3.1% 603,589 480,187 25.7% 10.6%

Main tenants Iberia 2004 Fixed Rents

Tenant Name Brands %

1 Inditex Zara; Pull & Bear; Bershka; Kiddy´s Class; Massimo Dutti; Stradivarius; Oysho; Often; Zara Home 9.3%

2 SONAE Distribuição Modelo; Bonjour; Vobis; Sport Zone; Worten; Modalfa; Max Mat 3.5%

3 Cortefiel Cortefiel; Douglas; Women Secret’s; Milano; Springfield 3.3%

4 Warner Lusomundo Warner Lusomundo 3.2%

5 Ibersol Pizza Hut; Pans & Company; KFC; Pasta Café; Iber; Goody´s; Ó Kilo; Burger King; Quiosque Buondi 2.9%

CascaiShopping

16


SIERRAINVESTMENTS – Asset Market ValuesAs a property company, we continue to assess the performance of our real estate assetsthrough the evolution of their open market value (OMV) as per the independentvaluations performed every year by Cushman & Wakefield/Healey & Baker.

Open Market Value (€000)

Shopping Centres in Operation % Sonae Sierra* Open Market Value OMV Variation31 Dec. 2004 31 Dec. 2004 31 Dec. 2003 Total 04/03 % 04/03

AlgarveShopping 100% 98,100 87,518 10,582 12%Arrábida Shopping 50% 64,028 63,236 792 1%CascaiShopping 50% 133,310 128,455 4,855 4%Centro Colombo 50% 297,956 283,873 14,083 5%Centro Vasco da Gama 50% 108,727 104,061 4,667 4%CoimbraShopping 100% 34,803 32,949 1,854 6%Coimbra Retail Park 50% 8,278 7,891 387 5%Estação Viana 100% 67,440 60,848 6,592 11%GaiaShopping 50% 67,346 63,494 3,852 6%GuimarãeShopping 100% 39,700 36,031 3,669 10%MadeiraShopping 50% 35,385 34,659 727 2%MaiaShopping 100% 53,687 52,137 1,550 3%NorteShopping 50% 155,956 147,776 8,180 6%Parque Atlântico 50% 28,431 25,355 3,076 12%ViaCatarina 50% 34,966 34,095 871 3%Edifício Grandela 100% 5,059 4,556 503 11%Gare do Oriente 100% 998 971 27 3%ClérigoShopping 1 100% – 581 – –Sintra Retail Park 2 – – 14,850 – –

Total Portugal 1,234,167 1,183,335 50,833 –

Avenida M40 4 60% 60,050 – – –Dos Mares 4 65% 23,741 – – –Grancasa 50% 69,008 65,750 3,258 5%La Farga 25% 12,193 11,352 841 7%Luz Del Tajo 4 65% 48,230 – – –Max Centre 50% 69,588 64,750 4,838 7%Parque Principado 3 50% 67,532 32,000 – –Plaza Mayor 100% 79,045 78,000 1,045 1%Valle Real 50% 38,089 34,300 3,789 11%Zubiarte 4 50% 52,410 – – –

Total Spain 519,884 286,152 233,732 –

Total 1,754,051 1,469,487 284,565 –

* In Centres owned by SIERRA Fund, it means control

1 ClérigoShopping was written-off during 20042 Sintra Retail Park was sold during 20043 Acquisition of an additional share of 25% during 20044 Opening during 2004

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9

843

1,05

5

1,37

6

1,46

9 1,75

4

1,20

7

1,32

1 1,80

2

2,39

0

2,67

2 3,10

1

Total ValueSonae Sierra Stake

Open Market Value of Centres in Operation (€ millions)


17

The objective of the Sierra Fund is to provideits investors with dividends and capitalappreciation derived from investments in highquality, actively managed shopping centres inSonae Sierra’s targeted markets in Portugal,Spain, Italy, Germany and Greece.

Our five partner investors in the Fund areStichting Pensioenfonds ABP of theNetherlands, the French companies of Caissedes Dépôts et Consignations EP, CNPAssurances and Ecureuil Vie, and TIAA-CREFwhich is based in the USA.

The commitment of these experienced andknowledgeable international institutionalinvestors not only validates the quality ofSonae Sierra’s existing assets anddevelopment programme, but also providesnew knowledge sources which will helpSonae Sierra improve its performance goingforward.

The performance of the Sierra Fund exceededexpectations during 2004. In particular, itsoperating income was in line with its budgetand despite, the revaluation of the centres itcurrently invests in was somewhat higher thanexpected due to the decrease in cap rates.

During the year, the Fund disposed of itsassets in the Sintra Retail Park (Sintra,Portugal) and acquired interests in ParqueAtlântico (Ponta Delgada, Portugal) andcommitted to acquire 50% interest in ParquePrincipado (Oviedo, Spain).

The assets of the Dos Mares (Murcia), AvenidaM40 (Madrid), Luz del Tajo (Toledo) andZubiarte (Bilbao), shopping centres in Spain– all of which opened during 2004 – andEstação Viana (Viana do Castelo, Portugal) arescheduled to be acquired by the Sierra Fundduring 2005.

In addition to the contribution expected fromour pipeline developments, the Fund has beenengaged in the intensive assessment of newopportunities with a view to selectingappropriate investments in Italy and Germany,where we expect to conclude the successfulacquisition of new schemes for the portfolioduring this coming year.

Parque Atlântico

– Sierra Fund

The Sierra Fund was launched

and closed in 2003 with a total

capital equity of €1.08 billion

Sierra Investments holds 50.1%

of the Fund and manages its

assets

In last year, the Fund’s

performance has exceeded

expectations

18


Retail operating income of

€133 million

EBITDA increased by 22% to

€108.3 million

Value created on properties of

€65 million

Net profit of €61.4 million

The company consolidates the Sierra Fund infull, given that it holds effective control with50.1% of the capital.

Direct Profits

The direct profits of Sierra Investments comefrom the operation of shopping and leisurecentres that are part of its portfolio, includingthose assets that are in the Sierra Fund.

The growth in turnover over 2003 is largelythe result of growth in the portfolio throughacquisition from Sierra Developments during2004 of projects which began operations inthe year, and of the acquisition of a further25% of the Parque Principado (Oviedo,Spain). In addition, rents in Portugal wereaffected by the sale of Sintra Retail Park(Sintra, Portugal) which took place in February2004. Shopping centre operational profitsgrew by 20%.

The amount of depreciation corresponds tothe amortisation of goodwill on the acquisitionof the former Filo portfolio (Spain) and of25% of Plaza Mayor (Malaga, Spain). UnderIAS, Investment Properties are not depreciated.

Net financial costs rose considerablycompared to 2003 due to an increase inbank debt from €666 million to a total of€870 million. This increase is largely the resultof the acquisition of assets during 2004 andof the refinancing operations of Centro Vascoda Gama (Lisbon, Portugal) and NorteShopping(Porto, Portugal).

Indirect Profits

Indirect profits arise either from the changein value of the investment properties or therealisation of capital gains on the sale ofassets and/or shareholding positions.

The value created on investment propertiesreached €65 million in 2004, of which€51 million relate to value creation on assetsin Portugal and the remaining €14 millionon asset value creation in Spain.

Capital gains on property sales amounted to€3.1 million and mainly came from the saleof Sintra Retail Park (Sintra, Portugal) inFebruary 2004 and the sale of ParqueAtlântico (Ponta Delgada, Portugal) to theSierra Fund in August 2004. The sale priceswere based on the respective independentevaluations without any deduction of deferredtaxes. Since the accounts published by thecompany had a deduction for deferred taxeson potential gains, the sale yielded a gainwhich broadly corresponds to this amount.

Corporation tax fell from €17.7 million to€13.1 million, mainly as a result of a fall inthe tax rate in Portugal.

In 2004, deferred tax reached €38.3 millioncompared to a negative amount of€20.8 million in 2003. This difference is theresult of a gain made in 2003 due torecognition of the reduction of the tax rate inPortugal that led to an adjustment to deferredtaxes in that year.

Minority interests of €38.3 million correspondmainly to 49.9% of the profit of theSierra Fund.

Sierra Investments contributed€61.4 million to the consolidated

profit of Sonae Sierra.Luz del Tajo

SIERRAINVESTMENTS – 2004 Financial Report


19

Sierra Investments Consolidated Profit & Loss Account (€000)2004 2003 % 04/03

Fixed rental income 112,003 95,973 17%Turnover rental income 8,018 7,559 6%Key-money 8,402 8,644 -3%Other income 4,781 3,718 29%

Retail operating income 133,204 115,893 15%

Property management services 7,526 6,342 19%Letting & promotion 1,876 1,872 0%Capital expenditure 3,478 5,624 -38%Other costs 10,716 11,066 -3%

Retail operating costs 23,596 24,904 -5%

Retail operating margin 109,608 90,989 20%

Parking operating margin 3,527 3,326 6%

Co-generation operating margin 1,008 809 25%

Shopping centre net operating margin 114,144 95,124 20%

Offices operating margin 321 311 3%

Overheads 6,173 6,382 -3%

EBITDA 108,292 89,053 22%

Depreciation 3,734 3,311 13%Provisions 379 559 -32%Recurrent net financial costs/(income) 35,214 30,561 15%Non-recurring costs/(income) 1,046 (1,929) 154%

Direct profit before taxes 67,918 56,551 20%

Corporate tax 13,149 17,655 -26%

Direct profit 54,769 38,896 41%

Gain on sale of properties 3,096 113,995 -97%Value created on properties 65,002 59,746 9%

Indirect income 68,097 173,741 -61%

Deferred tax 23,160 (20,777) 211%

Indirect profit 44,937 194,518 -77%

Net profit before minorities 99,706 233,413 -57%

Minorities 38,300 40,026 -4%

Net profit 61,406 193,388 -68%

Non-audited accounts

Sierra Investments Consolidated Balance Sheet (€000)31-12-2004 31-12-2003 var. 04/03

Investment properties & others 1,844,598 1,481,222 363,375Tenants 7,813 8,595 (782)Deferred taxes 14,261 8,054 6,207Other assets 90,115 69,144 20,970Deposits & short term investments 438,847 618,535 (179,689)

Total assets 2,395,633 2,185,552 210,081

Net worth 761,305 832,408 (71,103)

Minorities 221,056 182,472 38,584

Bank loans 870,124 666,161 203,964Shareholder loans 96,668 123,579 (26,910)Deferred taxes 285,014 244,752 40,261Other liabilities 161,465 136,180 25,286

Total liabilities 1,413,271 1,170,671 242,600

Net Worth, minorities and liabilities 2,395,633 2,185,552 210,081


AlgarveShopping


Four shopping centres opened in Spain: Dos Mares (Murcia), Avenida M40 (Madrid),

Luz del Tajo (Toledo) and Zubiarte (Bilbao)

Four new projects started construction: Rio Sul (Seixal) and CovilhãShopping (Covilhã)

in Portugal; Alexa (Berlin) in Germany and Freccia Rossa (Brescia) in Italy

Construction continued at three projects: LoureShopping (Loures, Portugal),

Plaza Éboli (Pinto, Spain) and Mediterranean Cosmos (Thessaloniki, Greece)

Commercial licence was obtained for Plaza Mayor Shopping (Malaga, Spain)

A new partnership was set up with Foncière Euris to develop Alexa (Berlin, Germany)

SIERRADEVELOPMENTS

As well as opening four new centresin Spain, we have begun work onboth, “Alexa” in Berlin and our“Freccia Rossa” developmentin Brescia.


21

“Completing and opening four new centres in Spain in one yearpresented us with major challenges.It is rewarding to have inauguratedall these centres on time.”

Business activities

Sierra Developments is responsible for thedevelopment of the company’s new shoppingand leisure centres in Europe. Our workencompasses land procurement, as well asconcept creation, construction managementand all other managerial activities necessaryto accomplish successful shopping centredevelopments.

Sierra Developments contributes significantlyto Sonae Sierra’s consolidated income throughproject management services supplied by usto our development partners during thecourse of the concept creation andconstruction process, as well as through thevalue added during the development phase.Each project’s full asset value is realised on itscompletion, when the entire property is soldto Sierra Investments.

It is in the development of shopping andleisure centres that the most added value iscreated. The constant recycling of capitalenables the company to invest in innovativeassets, backed up by a rigorous procurementpolicy and excellent management standards.Effective marketing and letting are otherfactors which are key to the success of ourprojects under development. These servicesare contracted out to our sister division, SierraManagement.

2005 Prospects

We look forward to a year in which we willsuccessfully open more new shopping centresin Portugal, Spain and Greece.

We also expect Europe’s economic climateand the availability of funds for propertyinvestment to generate an increasing interestin shopping centre developments. Encouragedby this, we shall continue our search for newopportunities in our target markets so that wecan feed our development pipeline and fulfilour five-year strategic plan.

We plan to improve our overall performanceby both adding to our staffing levels andenhancing our capabilities. We aim to bemore selective in our choice of developmentopportunities, and yet be even moreinnovative in terms of the design andconstruction of new centres and the mix oftenants and services we choose to offer.

We also aim to capitalise on the benefits ofbeing part of an integrated company with along-term business strategy. This not onlyguarantees us an investor who will takeownership of the property at the end of eachdevelopment program, it also enables us toimprove the quality of our product throughinteraction with both the investment andmanagement arms of the Sonae Sierra business.We also derive enormous benefit from thecompany’s marketing, leasing, administrative,accounting, legal and finance specialists.

Fernando Guedes OliveiraSonae Sierra Executive Director,Developments Europe

Avenida M40

22


New centres, new projects

Sierra Developments’ year was marked bythe completion and opening of four newshopping centres in Spain and the transferof these properties, at open market value(OMV), to Sierra Investments. During thesame period, we also commenced work onthe construction of four new centres inPortugal, Germany and Italy.

By the end of 2004, the two component partsof Sierra Developments’ profits – the directprofit derived from project managementservices, and the indirect profit arising fromvalue creation during a project’s developmentphase – had contributed to Sonae Sierra’soverall business in varying ways, accordingto the countries we operate in.

Our direct profits were lower than expectedin Germany, Italy and Greece, caused byunexpected delays to the start of our newdevelopments in those countries. By contrast,our indirect profits were higher in Spain andPortugal, mainly as a result of lower realestate yields, the skills of our projectmanagers and our successful leasing of spacewithin various projects while they were stillunder development, which led to higher OMVon completion.

The lowering of real estate yields in Spain andPortugal also had a positive impact on theopen market value of all the projects we stillhave under development, which lead tohigher OMV on completion.

SIERRADEVELOPMENTS – 2004 Performance

Profits improved during 2004, although our profitfrom development services varied across the countriesin which we operate.

Luz del Tajo

Dos Mares


23

New starts in PortugalIn Portugal, we began work on

two developments: Rio Sul (Seixal)and CovilhãShopping (Covilhã).

They represent a total investment of€92 million offering 57,500 m2 of

GLA. Both centres are expectedto open in spring 2006.

During the coming year, we expectto open the LoureShopping centre

in Loures. The marketing of this€111 million investment is already

successful, with 83% of the 38,700 m2

of GLA already let. LoureShopping willhave 106 shops and create more

than 1,000 jobs.

Setúbal Retail Park (Setúbal), is thecompany’s third investment of this

type in Portugal. It is a joint venturewith Miller Developments, the

company’s partner for the retail parkbusiness in Portugal and Spain.

It is estimated that the investmentwill total around €23 million.

» CovilhãShopping

Location Covilhã, Portugal

Opening Date Spring 2006

Catchment Area 109,000 inhab

GLA (m2) 17,800

No. of parking spaces 900

Shops 86

Gross Investment (€ million) 28

Developer Sonae Sierra

Owner Sonae Sierra

» LoureShopping

Location Loures, Portugal

Opening Date Autumn 2005


GLA (m2) 38,700

No. of parking spaces 2,100

Shops 106



Owner Sonae Sierra

» Rio Sul

Location Seixal, Portugal



GLA (m2) 39,700


Shops 140



Owner Sonae Sierra

» Setúbal Retail Park

Location Setúbal, Portugal



GLA (m2) 20,300

No. of parking spaces 880

Shops 18


Developers Sonae Sierra /

Miller Developments

Owners Sonae Sierra (50%) /

Miller Developments (50%)

24


The opening of four new centres in Spainin nine months marked a new stage in ourdevelopment as a company. Controlling allfour projects at once called for exceptionallevels of skill and dedication, which our staffdelivered admirably.

Dos Mares, a €36.5 million investment locatedbetween Alicante and Cartagena, was thefirst to open. It was jointly developed bySonae Sierra and the Eroski Group. Createdby a multidisciplinary team of skilledprofessionals, it was designed to fit into itsurban and rural surroundings and evoke thespirit of the Mediterranean through the useof colours, materials and natural lighting.With a catchment of 64,000 people within10 minutes’ drive, and a total of 73,000 lessthan 20 minutes’ away, Dos Mares expectssome five million visits per year.

Avenida M40 in Madrid opened on April 20th.With a GLA of 49,400 m2, it offers a hugevariety of shops and bars, including an Eroskihypermarket, a multiplex cinema andbranches of Zara, H&M, Sfera and Burger

King, as well as Benetton and McDonald’s.A joint venture between Sonae Sierra and theEroski Group, this €117 million investmentanticipates over nine million visits a year andwill generate a total of more than 1,500 jobs.

Luz del Tajo (Toledo), also in partnership withEroski Group, opened its doors in September.This €78 million development in Toledofeatures 130 shops and ten cinemas andexpects to receive 6.5 million visitors eachyear. Forty-three of the shops are occupied bylocal tenants, with major brands such as Zara,Forum, Mediamix and Sfera representedalongside an Eroski Hypermarket. Luz del Tajoalso offers consumers a choice of 22 bars andrestaurants.

Our fourth new centre in Spain – Zubiarte inBilbao – is a €90 million development inconjunction with ING Real Estate Developmentoffering 76 shops and, in the leisure area,eight cinemas capable of seating 1,800 people.Visitor levels have been forecast at nine milliona year.

We are on schedule to open another centrein Madrid – Plaza Éboli in the Pinto district –in March 2005. The centre, in partnership withthe Eroski Group, represents an investment of€56 million. It will have 32,000 m2 of GLA with101 shops and parking for about 1,000 cars.

In Malaga, we expect to begin the constructionof Plaza Mayor Shopping during the secondhalf of 2005, immediately after obtaining theconstruction license. This joint venture withCastle Management represents a €45 millioninvestment with 18,800 m2 of GLA.

» Plaza Éboli

Location Madrid, Spain

Opening Date 16 March 2005


GLA (m2) 32,000


Shops 101



Eroski Group


Eroski Group (35%)

» Plaza Mayor Shopping

Location Malaga, Spain



GLA (m2) 18,800


Shops 61



Castle Management


Castle Management (25%)

Spanish achievement


25

» Freccia Rossa

Location Brescia, Italy



GLA (m2) 29,000


Shops 130



AIG / Coimpredil


AIG (40%) / Coimpredil (10%)

» Caselle

Location Torino, Italy


Catchment Area 1,750,000 inhab

GLA (m2) 86,000


Shops 300



Owner Sonae Sierra

Our Freccia Rossa centre (Brescia) is a€114 million joint investment between SonaeSierra, AIG (USA) and Coimpredil (Italy).With a total GLA of 29,000 m2 and 130 shops,it is due to open early 2007.

During 2004 we have agreed terms topurchase a large plot of land in Torino, subjectto getting the necessary licenses to develop alarge shopping and leisure centre. We havebeen working to obtain the necessary licensesfor a regional shopping centre of 86,000 m2

of GLA in two levels, anchored by a largehypermarket and a cinema complex.

Italian developments

2004 saw the start of ourfirst development in Italyat Brescia.

26


In October 2004 we announced the firstgroundbreaking moves in the developmentof our Alexa shopping centre in Berlin.

This €266 million project is a joint venturebetween Sonae Sierra and France’s, FoncièreEuris. Being built on a 3.2 hectare site, thisshopping and leisure centre will accommodateapproximately 180 tenants, a large coveredcar park and entertainment facilities completewith multiple restaurants and bars.

Due for completion in the Autumn of 2006,Alexa (Berlin) – named in honour of Berlin’sadjacent Alexanderplatz – has been designedas a fundamental piece in a larger multi-usedevelopment featuring offices, hotels andhousing.

We continued our works on the design,licensing and contracting for the 68,600 m2

GLA of 3DO, in Dortmund, and have alreadystarted the pre-leasing activity. We areconvinced that during the first half of 2005all those activities will be completed so thatconstruction on site begins before year-end.

» Alexa

Location Berlin, Germany



GLA (m2) 58,800


Shops 180




Foncière Euris (50%)

» 3 DO

Location Dortmund, Germany



GLA (m2) 68,600


Shops 200



Owner Sonae Sierra

New ground broken in Germany


27

2005 will mark the culmination of ourdevelopment work in Thessaloniki, Greece,when Mediterranean Cosmos – the firstmodern shopping centre ever built in Greece– opens to the public.

This has been an arduous project for SierraCharagionis, our joint venture withCharagionis Group for the Greek market,since the Greek retail sector has no previousexperience of large shopping centres withinternational standards.

We are, however, confident that MediterraneanCosmos will be a success and that this€110 million project, developed by SierraCharagionis and LAMDA Development Group,will pave the way for Aegean Park, in Athens,the second development of Sierra Charagionis,for which we are still awaiting planningconsents.

» Mediterranean Cosmos

Location Thessaloniki, Greece



GLA (m2) 46,500


Shops 226


Developers Sierra Charagionis /

Lamda Developments

Owners Sierra Charagionis (39.9%) /

Lamda Developments (60.1%)

» Aegean Park

Location Athens, Greece



GLA (m2) 51,000


Shops 155


Developer Sierra Charagionis


Charagionis Group (50%)

New centre for Greece

28


Development services rendered

of €10.5 million

Value created on assets of

€32.2 million


Sierra Developments contributed €21.9 millionto the consolidated profit of Sonae Sierracompared to €8.0 million in 2003. The profithas two essential components: the first resultsfrom the normal activity of development, withproject management fees designated as directprofit; the second corresponds to the valuecreated during the development process andis captured under indirect profits.

Direct Profit

Development services, resulting from realestate development management servicescapitalised on projects in progress in Europe,grew 53% compared to 2003 due to newprojects in Portugal, Spain, Italy and Germany.

Operational costs increased 17% over theprevious year, as a result of exploring newbusiness opportunities internationally and anincrease in the number of staff.

Indirect Profit

In the shopping centres opened in Spainduring 2004 - Dos Mares (Murcia), AvenidaM40 (Madrid), Luz del Tajo (Toledo), andZubiarte (Bilbao) – which were sold to SierraInvestments, the value created up to theopening date was €18.7 million, of which€10.7 million have been recognised in prior years.

The increase in Open Market Value (OMV) of the shopping centres sold to SierraInvestments in 2003 led to a price adjustmentof €7.6 million.

The value created in centres underdevelopment, where a construction license hasbeen obtained, reached €16.5 million in 2004.

A total amount of €280 millionwas invested during 2004.

Luz del Tajo

SIERRADEVELOPMENTS – 2004 Financial Report


29

Sierra Developments Consolidated Profit & Loss Account (€ 000)2004 2003 % 04/03

Development services rendered 10,533 6,899 53%

Operating costs 20,610 17,573 17%

EBITDA (10,076) (10,674) 6%

Depreciation and provisions 250 418 -40%Net financial costs/(income) 1,946 (210) –Non-recurring costs/(income) 267 27 –

Direct profit before taxes (12,539) (10,910) -15%

Corporate tax (1,793) (1,621) -11%

Direct profit (10,746) (9,290) -16%

realised on investments 15,619 6,220 151%Value created on properties under development 16,532 11,106 49%

Indirect profit 32,151 17,326 86%

Net profit before minorities 21,406 8,036 166%

Minorities (511) – –

Net profit 21,916 8,036 173%


Sierra Developments Consolidated Balance Sheet (€ 000)31-12-2004 31-12-2003 var. 04/03

Properties under development 221,669 194,129 27,540

Goodwill 10,938 – 10,938

Tenants 2,750 8,151 (5,401)

Other assets 67,957 102,485 (34,528)

Deposits 12,640 10,136 2,504

Total assets 315,954 314,901 1,053

Net worth 62,080 45,791 16,289

Minorities 19,764 9,975 9,789

Bank loans 18,020 36,032 (18,012)

Shareholder loans 127,868 177,879 (50,010)

Deferred taxes 10,876 599 10,277

Other liabilities 77,346 44,626 32,720

Total liabilities 234,110 259,136 (25,025)

Net worth, minorities and liabilities 315,954 314,901 1,053


NorteShopping

AlgarveShopping


Three new centres being let in Portugal

Six new properties under management in Spain, making us the leading Shopping

Centre Property Manager in Iberia

Consolidation of our Italian operation, with the opening of the expansion of

OrioCenter, (Bergamo), and two new centres being managed

Launch of our Greek operation

Several prizes won at the ICSC Marketing Awards, both in Europe and in USA

SIERRAMANAGEMENT

Set against the backdrop ofEurope’s overall economic climate,the performance of most of ourshopping centres was verysatisfactory. We outperformed the competition.


31

“Our major goal is to increase ourefficiency by taking full advantageof the economies of scale whichexist in the property managementbusiness. We have a variety of waysof achieving this.”

Business activities

Sierra Management is responsible for bothletting and managing a wide range ofshopping and leisure centres, either owned bySonae Sierra or by third parties, in Portugal,Spain and Italy. The division also has lettingactivities in Greece and Germany, where it willstart management activities during the nextcouple of years.

Our role is to maintain vital links betweenowners and tenants and thus contribute toSonae Sierra profits through the variousmanagement services we provide in theshopping centres we are responsible for.

As a pioneer in our sector, we have longrecognised that services like these must bemaintained at the highest levels if the shoppingcentres in our care are to increase in value overtime. This approach is particularly important inmatters relating to tenant mix, where we haveachieved some notable successes.

2005 Prospects

We expect to see a positive performance fromall the centres presently managed by SierraManagement. We also expect to make furtherprogress in letting the company’s new centrescurrently under development in Portugal,Spain, Italy and Germany.

The opening of our new centre in Greece willnot only introduce the Greek people to theirfirst experience of modern shopping centresin their own country, but also stand as amilestone in our development as a company.Its success will add fuel to our ambition ofbecoming the most acclaimed centremanagement company in Europe.

Pedro CaupersSonae Sierra Executive Director,Property Management Europe

AlgarveShopping

32


While the focus of our activities remainsconcentrated on shopping and leisure centremanagement, marketing and letting, the scopeof our business has broadened geographicallyduring the past year. We now have a largerportfolio of properties under management –particularly in Spain and Italy – and we havebegun letting activities in Greece and Germany.

Our Spanish activities now encompass themanagement of five new centres in keylocations across Spain. These include therecently opened Avenida M40, in Madrid,Dos Mares, between Alicante and Cartagena,Luz del Tajo, in Toledo, and Zubiarte, in Bilbao,all of which are either owned or co-owned bySonae Sierra. We also started managing MN4, aValencia centre which is owned by a third party.

This third party management contract ismirrored by others we have for themanagement of the OrioCenter in Bergamo,Italy, which is owned by CGI and expandedin 2004, and two new centres in Italy –Moncalieri (Torino) and Biccoca (Milan) –which Pirelli Real Estate has developedmore recently.

As a result of our expansion in Spain and Italy,we finished 2004 with an operational portfoliocomposed of 19 shopping centres, two retailparks and some smaller galleries in Portugal,13 centres and one retail park in Spain andthree centres in Italy. When we include theseven centres under management in Brazil,our portfolio now exceeds 1.85 million m2

of Gross Leasing Area. This makes us oneof the leading European companies in theShopping Centre management business.

Successful campaigns

Marketing is central to our success as acompany. It is our job to ensure that thecentres developed by Sonae Sierra are fullytenanted, and that our tenants enjoy thecustom of contented consumers.

During the past year, several of our marketingcampaigns won industry awards. For example,we were awarded three Merit Certificates atthe ICSC Jean Louis Solal Awards, presentedin Rome last April. We also won one Awardand one Merit Certificate at the MAXI Awardsof the ICSC in the USA, which were presentedin late September in San Antonio.

We have also developed and enlarged thescope of our two web portals which provideinformation on our existing centres and thosestill under development. Our consumer portal,SierraCentres.Com, which brings together allthe web sites of our main centres, now hostsa total of 39 centres (six more than inDecember 2003), while our business-to-business portal at SierraCentres.Net, whichprovides services for our tenants, is nowcovering a total of 97 centres and galleries(up by seven on December 2003).

This commitment to technology is furtherreflected in the fact that customers in ournine largest centres in Portugal are nowprovided with wireless internet connectivity.

A growing business

The success of our portfolio undermanagement is directly affected by our abilityto manage, market and let the properties inour care. The following tables give anindication of the success we have achievedover the past years.

NorteShoppingEstação Viana

SIERRAMANAGEMENT – 2004 Performance

With the retail properties now under management inPortugal and Spain, we are recognised as the leadingIberian company in our chosen field.


33

Sales and Visits of portfolio under management

Visits % 04/03 Sales % 04/032004 2003 total like-for-like 2004 2003 total like-for-like

Portugal 270,568 260,104 4.0% 0.8% 2,003,770 1,850,649 8.3% 4.0%

Spain 65,693 55,432 18.5% 1.7% 669,783 534,746 25.3% 10.2%

Italy 7,257 7,238 0.3% 0.3% 147,257 144,234 2.1% 2.1%

Sales in €000

Visits in thousands

Portugal Spain Italy

GLA ownedGLA third-party

668

267

652

283

38

447

95

312

56 99

03 04 03 04 03 04

Portugal

94

5000

4000

3000

2000

1000

095 96 97 98 99 00 01 02 03 04

GLA (000 m2)No. of Contracts

198 32

7

349 55

0

625 78

4

853

1,01

5 1,29

3

1,34

2 1,57

6


Collections 2004Collections 2003

100.

3%

99.8

%

98.0

%

98.9

%

99.0

%

97.9

%


Centres in OperationNew Projects

15

158

465

99

9

52

Portfolio under management

Portfolio under management Collections Rate Letting (no. of contracts)

However, we have started the letting programmes for a further three centres – LoureShopping(Loures), Rio Sul (Seixal), and CovilhãShopping (Covilhã) – all of which are currently underconstruction. So far, the market reaction has been positive. We are confident that the currentsituation will lead to our letting objectives being met.

Following the opening of Parque Atlântico (Ponta Delgada),Coimbra Retail Park (Coimbra) and Estação Viana (Viana do Castelo)during the latter part of 2003, our portfolio of shopping centresunder management in Portugal was unchanged during 2004.

34


In general terms, these properties performedvery positively, with the exception of La Farga(Barcelona) where the performance wasaffected by the ongoing refurbishment works,La Morea (Pamplona) which faced strongcompetition from new opposition duringthe last quarter of 2004, and Avenida M40,which is also facing strong competition inthe South of Madrid.

Spain

Italy

Performance during the year was quite good,taking into consideration the expansion workswhich temporarily affected the centre’s carparking capacity. We also signed propertymanagement contracts for two new centres –Biccoca (Milan) and Moncalieri (Torino) – whichhave been developed by Pirelli Real Estate andwhich will be opening in phases until theircompletion during the first half of 2005.

ZubiarteAvenida M40

During the year, our portfolio of properties under managementin Spain rose from 8 shopping centres to 13 shopping centresand one retail park which, by any standards, representssignificant growth.

The OrioCenter (Bergamo) expansion wasinaugurated as fully let on 25th November,making it the largest shopping centre in Italy.


35

Germany

The market reaction has been positive in bothcases, and we expect to sign deals with themost important tenants by the end of the firstquarter of 2005. We have also decided tolaunch the future property managementcompany, which will begin trading as aseparate entity early in 2005.

Letting is also under way. The main challengewe face is the fact that no real modernshopping centres exist in Greece. This makesit difficult to explain the real advantages ofbeing a tenant in a regional shopping centre.Nevertheless, we are confident our potentialtenants will come to understand the benefitsoffered by Mediterranean Cosmos, Thessaloniki,during the course of the year.

Greece

The major focus of our work during 2004was on the letting of the anchor storesfor the Alexa project in Berlin and the3DO project in Dortmund.

We have begun hiring and training the staff who will managethe Mediterranean Cosmos centre, which is due to open inThessaloniki in the Autumn of 2005.

36


Income from management

services of €25.9 million

EBITDA of €7.3 million


Total income grew 13% overall between2003 and 2004 as a result of an increase inbusiness activity, both through new centreopenings in Spain and the start up ofmanagement of centres owned by thirdparties such as MN4 (Valência) in Spain andOrioCentre (Bergamo), Moncalieri (Torino) andBiccoca (Milan) in Italy. The increase in theportfolio under management which tookplace in 2003 also contributed towards theincrease in income.

Operating costs including staff costs, whichare an important component of costs in thisservice activity, grew by 23% in 2004. Thisgrowth during 2004, above that of income,was due to the start up of operations in Italy,

and the set up of management teams inGreece. The impact of economies of scale willbe felt in the future particularly in terms of the“back office” with the increase in the portfoliounder management in these countries.As a result of the growth of the SierraManagement structure, operational profits(EBITDA) fell 6% between 2003 and 2004.

Corporate tax fell by 34%, as a result of thereduction in the tax rate in Portugal from33% to 27.5%.

Sierra Management contributed €4.8 millionto the consolidated profit of Sonae Sierra,an increase of 17%.

ViaCatarina Plaza Mayor

SIERRAMANAGEMENT – 2004 Financial Report


37

Sierra Management Consolidated Profit & Loss Account (€000)2004 2003 % 04/03

Property management fees 19,407 16,454 18%Letting fees 4,534 4,565 -1%Other income 1,913 1,777 8%

Income from prop. management services 25,854 22,796 13%


EBITDA 7,320 7,750 -6%

Depreciation 1,277 1,439 -11%Net financial costs/(income) (695) (614) -13%Non-recurring costs/(income) 91 107 -15%

Profit before taxes 6,647 6,818 -3%

Corporate tax 1,794 2,728 -34%

Net profit before minorities 4,853 4,090 19%

Minorities 50 1 –

Net profit 4,803 4,089 17%


Sierra Management Consolidated Balance Sheet (€000)31-12-2004 31-12-2003 var. 04/03

Net fixed assets 511 782 (271)

Goodwill 8,412 9,484 (1,071)

Tenants 9,649 10,873 (1,224)

Deferred taxes 452 210 241

Other assets 4,247 4,276 (29)

Deposits 27,130 26,264 866

Total assets 50,400 51,889 (1,489)

Net worth 7,893 7,119 774

Minorities 58 2 56

Shareholder loans 8,846 9,870 (1,024)

Other liabilities 33,603 34,898 (1,295)

Total liabilities 42,449 44,768 (2,319)

Net worth, minorities and liabilities 50,400 51,889 (1,489)


Centro Vasco da Gama


Total portfolio open market value (OMV) of Sonae Sierra Brazil reached €240.5 million,

an increase of 23.1% compared to 2003

Boavista Shopping in São Paulo opened in April 2004

Expansion of Shopping Penha completed in October 2004; Sonae Sierra Brazil now

owns 64.7% of this asset

Parque D. Pedro consolidated its market position and was visited by more than

17 million consumers; sales grew by 19.2%

SONAESIERRA BRAZIL

By opening our new BoavistaShopping and extending ShoppingPenha, both in São Paulo, we havetaken further steps towards ourgoal of becoming one of the bestcompanies in our sector.


39

“Our ambition for 2005 is toincrease our standing in the marketby starting two new shoppingcentre developments and acquiringanother for refurbishment andsubsequent management.”

Business activities

Sonae Sierra’s strategic aim is to become asignificant presence in the Brazilian shoppingcentre market.

Sonae Sierra Brazil is an independent businessoperation set up by Sonae Sierra to fulfil thislimited aim. Its professional skills cover allaspects of the investment in, developmentand management of shopping centres.The principal objective is to create a strongbusiness in a market with high potential,either by improving the performance of theshopping centres we own, or through thedevelopment of new projects.

The establishment of partnerships with localor foreign investors is a key part of thisexpansion programme.

2005 Prospects

Consumer confidence and spending poweris strengthening in Brazil, particularly in theurban areas which our business serves.We anticipate that this improvement in thecountry’s economic health will encouragemore companies to take up tenancies inshopping centres and thus help increase ourrental income.

We are constantly looking for opportunitiesto either develop new shopping centres oracquire established centres whoseperformance we believe we can improve.

We aim to begin work on two new projectsof our own during 2005, and acquire anexisting shopping centre with a view torefurbishing it and taking over itsmanagement.

João Pessoa JorgeSonae Sierra Executive Director, Brazil

Parque D. Pedro

40


The highlight of 2004 for Sonae Sierra Brazilwas the opening of our new Boavistashopping centre in São Paulo. This property –the result of a €20 million investment bySonae Sierra and Sierra Enplanta – offers23,800 m2 of GLA arranged to accommodatea total of 167 stores comprised of four anchorstores, 140 satellite stores, and 23 fast foodrestaurants. The centre also features parkingfor over 1,000 vehicles. Boavista Shopping(São Paulo) opened in April 2004. During theyear, we also completed the expansion ofShopping Penha in São Paulo. This propertynow has a GLA of 29,800 m2, created by acombination of vertical and horizontalenlargement, made possible by the purchaseof neighbouring spaces. The centre featuresa total of 250 stores: 6 anchor stores, 225satellite stores and 19 fast food restaurants.There is parking for 2,000 vehicles.

The completion of these projects againsta background of only a slight recovery ofconsumer confidence demonstrates ourcommitment to a long-term perspective. Theyalso bring our total of shopping centres to 7.In addition to Boavista Shopping and ShoppingPenha, both in São Paulo, we own andmanage Parque D. Pedro (Campinas, SP),Pátio Brasil (Brasilia, DF), Shopping Metrópole(São Bernardo do Campo, SP), Tivoli Shopping(Santa Bárbara D´Oeste, SP) and FrancaShopping (Franca, SP). Together, thesedevelopments offer a total GLA of260,000 m2.

A challenging year

There is no doubt, the political and macro-economic events in Brazil affected ourperformance during 2004.

In macro-economic terms, the Brazilianeconomy performed better than expected.The value of the Real increased against theUS$ and it was stable against the Euro. Themajor problem remains high interest rates.The consolidation of Brazil economic growthdepends crucially on maintaining strict policiesconcerning inflation and control of the publicdeficit.

On the letting side, some of our tenantsexperienced lower sales which led to somedifficulties. However, business confidenceis improving and we expect to reduce thenumber of vacant units in our propertiesin the near future.

For the time being, we have cancelled anew project in Curitiba, mainly due to theuncertainty of the Brazilian economy andthe large size of the project.

Looking ahead, we know we must remaincommitted to innovation, concentrate on therenewal of tenancies and do all that we canto help our tenants achieve better.

We must sustain our investment in our image,maintain our focus through market analysisand look for new opportunities for growththrough the development of innovativeshopping centres and the acquisition of otherswhich have the potential for improvement.

Our objective is to be one of the bestcompanies in this sector in Brazil. Oureconomies of scale are very important in thisprocess. It is also important for our offer tobe attractive to future tenants, in particularbrands which can become anchor stores.

We believe we have the abilities needed toattract foreign partners to the shopping centrebusiness in Brazil, either as developers orinvestors. We are in discussions with ourpresent partners in other markets, and in newones, who could embark on joint ventures withus, trusting our expertise and track record.

The long-term debt market is underdevelopedand very expensive in Brazil. Our aim is to beinnovative in this area, looking either foralternative funding opportunities or equityinvestors.

SONAE SIERRABRAZIL – 2004 Performance

The opening of the €20 million Boavista Shoppingnot only increased our total GLA under managementby 23,800 m2, it also provided some 1,800 new jobsin São Paulo.


41

The relationship between rents,occupancy, sales and visits

Our success in the market is governed asmuch by our ability to market and let ourproperties as it is by our skill in creatingattractive developments.

The tables below show how rents, occupancyrates, sales and customer visits all interactwith each other.

Rents

Fixed rents Variable rents Total rents % 04/03 rents2004 2003 2004 2003 2004 2003 total like-for-like

Brazil 21,006 18,764 1,541 1,475 22,547 20,240 11.4% 7.0%

Rents in €000

Sales and Visits

Visits % 04/03 Sales % 04/032004 2003 total like-for-like 2004 2003 total like-for-like

Brazil 67,253 59,212 13.6% 7.2% 391,532 334,887 16.9% 10.4%

Sales in €000

Visits in thousands

Occupancy Rate

2004 2003

Brazil 81.7% 84.9%

Open Market Value (€000)

Shopping Centres in % Sonae Sierra Open Market Value OMV Variation

Operation 31 Dec. 2004 31 Dec. 2004 31 Dec. 2003 Total 04/03 % 04/03

Shopping Penha 1 64.7% 18,005 840 – –

Shopping Metrópole 5.0% 1,421 1,297 124 10%

Tivoli Shopping 12.5% 1,292 1,369 (77) -6%

Franca Shopping 48.8% 2,670 2,272 398 18%

Pátio Brazil Shopping 5.2% 2,103 1,892 211 11%

Parque D. Pedro 97.9% 110,723 105,790 4,933 5%

Boavista Shopping 2 97.5% 17,314 – – –

Total – 153,527 113,460 40,067 –

1 Increase of participation share during 20042 Opening during 2004

Open market value

The table below provides a comparisonbetween the Open Market Value of propertiesowned by Sonae Sierra Brazil at the end of2003 and at the end of 2004.

Tivoli Shopping

42


Shopping centre operating

margin grew by 20%

Direct profit reached

€4.5 million

Investment of €19 million

during 2004

Sonae Sierra Brazil’s contribution to theconsolidated profits of Sonae Sierra wasnegative, as a result of indirect losses made in2004. On the other hand, direct profits fromthe operational activity of Sonae Sierra Brazilgrew from €562,000 to €4.5 million due togrowth in the portfolio.

Direct Profit

In the investment business, fixed rents grewby 28% compared to 2003, due to an increasein the occupancy rate of Parque D. Pedro(Campinas, SP), the start up of BoavistaShopping (São Paulo), the acquisition of anadditional shareholding position in ShoppingPenha (São Paulo) and the conclusion of itsexpansion, and the acquisition, during 2003,of an additional shareholding position inFranca Shopping (Franca, SP). During 2004,there was a 20% increase in operating margin.

In the development business, the income fellfrom €608,000 to €248,000 as a result of theopening of two centres under developmentduring 2004.

In the management business, the incomefell 19% during 2004, due to a decrease inletting activity due to the opening of BoavistaShopping and the completion of the expansionof Shopping Penha during the period.

The fall in corporate tax was largely due tointerests on capital paid by Parque D. Pedroto the shareholders being considered taxdeductible, in accordance with recentlyimplemented Brazilian tax law.

Indirect Profit

Value created on properties was positive at€1.2 million as a result of the valuation of allinvestment properties.

Value created on properties developed wasnegative at €6.9 million as a result of theimpairment of the investment made in theCuritiba project, which has been cancelled.In addition, the open market value (OMV) ofBoavista Shopping was below expectations,resulting in a negative margin on the project.

Investment properties reached€153.5 million a 14% increase.

Boavista Shopping

SONAE SIERRABRAZIL – 2004 Financial Report


43

Sonae Sierra Brazil Consolidated Profit & Loss Account (€000)2004 2003 % 04/03

Fixed rental income 10,844 8,449 28%Turnover rental income 721 518 39%Key-money 1,703 908 88%Other income 363 207 75%

Retail operating income 13,631 10,082 35%

Property management services 281 380 -26%Letting & promotion services 1,149 390 194%Other costs 3,462 2,038 70%Retail operating costs 4,891 2,808 74%

Parking operating margin 15 20 -26%

Shopping centre net operating margin 8,754 7,294 20%

Income from project development services 248 608 -59%Income from property management services 1,257 1,554 -19%Income from services rendered 1,504 2,162 -30%

Overheads 3,843 3,112 24%

EBITDA 6,415 6,344 1%

Depreciation 58 102 -43%Provisions 571 983 -42%Net financial costs/(income) 2,770 2,902 -5%Non-recurring costs/(income) 142 1,671 -92%

Direct profit before taxes 2,874 686 319%

Corporate tax (1,674) 124 –

Direct Profit 4,548 562 –

Value created on properties 1,238 14,295 -91%Value created on properties under development (6,854) 857 –

Indirect income (5,615) 15,152 -137%

Deferred tax (191) 5,213 -104%

Indirect profit (5,424) 9,939 -155%

Net profit before minorities (876) 10,500 -108%

Minorities 41 – –

Net profit (917) 10,500 -109%


Sonae Sierra Brazil Consolidated Balance Sheet (€000)31-12-2004 31-12-2003 var. 04/03

Properties 153,527 134,804 18,723

investments 153,527 113,459 40,068

under development – 21,345 (21,345)

Tenants 3,897 3,898 (1)

Deferred taxes 4,131 3,230 901

Other assets 2,651 1,891 760

Deposits 1,008 769 238

Total assets 165,215 144,593 20,622

Net worth (33,021) (35,087) 2,065

Minorities 2,518 2,121 397

Bank loans 772 663 109

Shareholder loans 164,625 148,685 15,939

Deferred taxes 20,703 19,851 852


Total liabilities 195,718 177,559 18,159

Net worth, minorities and liabilities 165,215 144,593 20,622


Parque D. Pedro

Boavista Shopping

SONAE SIERRA– CONSOLIDATED ACCOUNTS

Sonae Sierra In Review 2004Consolidated Accounts

22% increase in Direct Net Profits from €41.6 million to €50.8 million

9.8% increase in EBITDA from €98.1 million to €107.6 million

Total Net Profit After Minorities of €82.3 million

Net Asset Value (NAV) increased by €112 million, a growth of 11.8%

Bank debt grew from €764 million to €934 million, increasing the net asset gearing

from 24% to a still conservative 28.8%

Interest cover ratio maintained at a comfortable 2.67 level

Reduction of the average cost of debt to 5%, the majority of which is at fixed rate

Project financed Luz del Tajo (Toledo, Spain) and Plaza Mayor Shopping (Malaga,

Spain) and re-financed Centro Vasco da Gama (Lisbon, Portugal), NorteShopping

(Porto, Portugal), Avenida M40 (Madrid, Spain) and La Farga (Barcelona, Spain)

Our limited recourse mortgaged-backed project finance formulacontinues to be the cornerstone ofour financial policy. Gearing and re-gearing our assets will be key toour company’s continuing growth.


45

Our financial partnerships are key to oursuccess. During the year, we have deepenedrelations with our core bankers and embarkedon a programme designed to enhance ourrelationships with local banks in Germany,where we are talking to HSH Nordbank,Helaba, and SEB, in Italy, where we areworking with Unibanco MediocreditoCentrale, and in Greece with Emporiki Bank.

Leveraged assets

We have also continued to leverage thecompany’s assets by, for example, refinancingLisbon’s Centro Vasco da Gama (Lisbon,Portugal) so that the total debt associatedwith the project has increased from €110million to €130 million. We have similarlyrefinanced NorteShopping (Porto, Portugal)increasing its total debt from €62 million to€200 million. Both these refinancing werehelped by low interest rates during the year,which also led to a reduction on the averageinterest rate in our loan portfolio.

In both cases, the company more thanrecovered its initial equity investment throughthe refinancing operations and, effectively,transformed in liquidity part or all of thevaluation gain booked on those properties inaccordance with IAS 40. As a consequence,it is not entirely correct to say that, under IAS,there is a cash profit and a non-cash profit –the valuation gain – since, through eithersales or refinancing, the valuation gain canbe monetised.

Sustaining our financial performance dependson the positive interaction of a number ofdisciplines. For example, value is created inthe development process and again throughthe active management of our properties inoperation. It is also created by the dynamicsof the investment markets, through changesin valuations and, finally, by the way wemanage our debt. The objective at all times isto minimise our costs within an environmentof increasing debt.

In all these areas, rigorous financial monitoringand the use of hedging instruments helps ourmanagers achieve value creation in a sustainedway. We also make a considerable investmentin the personnel and systems we employ infinancial reporting.

Improved Returns

Our objective for the year ahead is to increasethe asset gearing of the company, which stoodat a conservative level of 28.8% at the end of2004, with the aim of achieving an improvedreturn on equity. This will be done mainlythrough the refinancing of existing operatingassets. At the same time, we shall closelymonitor our interest rate risk, always choosingthe most suitable hedging instrument.

We anticipate that the terms for the financingfacilities for a number of projects –LoureShopping (Loures, Portugal)CovilhãShopping (Covilhã, Portugal), Rio Sul(Seixal, Portugal), Alexa (Berlin, Germany),3DO (Dortmund, Germany), Freccia Rossa(Brescia, Italy), Mediterranean Cosmos(Thessaloniki, Greece) – will all be agreedand signed off during 2005.

We plan to make additional investments inour back office facilities in Germany, Italy andGreece during the coming year. Our objectiveis not only to increase our staff levels in thesecountries, but also to install new IT systemsthat mirror those we have in place in Portugal,Spain and Brazil. The aim here is to furtherharmonise our shopping centre management,planning, reporting and accountingprocedures with a view to gaining greateroperational efficiencies.

Edmundo FigueiredoSonae Sierra Executive Director, CFO

Turnover continued to grow in2004 with direct income increasingby €18.7 million to a total of€184.6 million. All business areascontributed to this growth.

46


Consolidated Profit and Loss Account

Sonae Sierra had a net consolidated profit of€82 million, €208.7 million in 2003. However,last year’s figure was impacted both by the setup of the Sierra Fund in September 2003 andby the sale, in March 2003, of 50% of CentroVasco da Gama (Lisbon, Portugal), and theeffect of the reduction, in Portugal, of thecorporate tax rate, from 33% to 27.5%.Excluding these effects, 2003 net profit wouldhave been €77.4 million, 6% below the 2004net profit.

This 2004 result was essentially due to twofactors: (i) improvement in the companyoperational level with more shopping centresin operation following the openings during2004; and (ii) positive change in the marketvalue of assets.

Turnover continued to grow in 2004 withdirect income increasing by €18.7 million toa total of €184.6 million. All business areascontributed to this growth.

Net financial costs increased significantlymainly due to the following factors:

(i) increase in the debt of AlgarveShopping(Albufeira, Portugal) and of the companyowning the Gran Casa (Saragoza, Spain),Max Center (Bilbao, Spain) and Valle Real(Santander, Spain) shopping centres;

(ii) refinancing operations of Centro Vascoda Gama (Lisbon, Portugal) andNorteShopping (Porto, Portugal); and

(iii) financing of shopping centres opened inSpain during 2004. Dos Mares (Murcia),Avenida M40 (Madrid), Luz del Tajo(Toledo) and Zubiarte (Bilbao).

The company realised a gain of €1.6 millionas a result of the following:

(i) sale of Sintra Retail Park (Sintra, Portugal)

(ii) sale of Parque Atlântico (Ponta Delgada,Portugal) to Sierra Fund;

(iii) recognition of a loss on the investmentmade in the Curitiba project (Brazil).

Net Asset Value (NAV)

Starting in 2001, the company decided toadopt International Accounting Standards (IAS)in the preparation of its consolidated accounts.The IAS led to the open-market value of theinvestment properties being reflected in thecompany’s balance sheet. However, thecompany does not believe that the Net AssetValue resulting from such a balance sheet trulyreflects its value, for two reasons.

In the first instance, under IAS rules,properties being developed and propertiesheld for sale are not booked at market value.In the case of Sonae Sierra, shopping centresunder development are therefore booked athistoric cost. The undervaluation of theseassets can be significant.

In the second instance, under IAS rules,deferred taxes on unrealized gains oninvestment properties are accounted for in thebalance sheet. From the company’s point ofview, the deduction of this deferred tax isarguable, as the transaction of Sintra RetailPark (Sintra, Portugal) and Parque Atlântico(Ponta Delgada, Portugal) has once againconfirmed. When a property is sold, themarket practice is not to sell the property assuch, but to sell the holding company thatowns it. And, in fact, in various jurisdictions,capital gains arising from the sale of sharesare sheltered from tax.

For these reasons, the company calculates andpublishes a Net Asset Value that results fromvaluing all its properties at open market valueand does not include a deduction for deferredtaxes on unrealized capital gains. The NAVdoes not include either the value of itsoperating businesses other than that resultingfrom acquisitions.

The calculation now presented is consistentwith the NAV calculation published inprevious years.

The NAV, on 31 December 2004, of theproperties attributable to Sonae Sierra was€1,060 million, against €948 million on31 December 2003. The NAV per share ofthe properties attributed to the Companyis €32.60 against €29.16 on 31 December2003, an increase of 11.8%.

Dec

99

Dec

00

Dec

01

Dec

02

Dec

04

Dec

03

NAV (€ 000)

643 75

2

934

1,03

7

948

1,06

0

NAV per share (€)

Dec

99

Dec

00

Dec

01

Dec

02

Dec

04

Dec

03

17.1

5

20.0

5 24.9 27

.67

29.1

6 32.6


47

As a result of the transactions that took place in2004, the company’s position was once againconfirmed, the open market value (OMV) ofits assets, less company liabilities, without thededuction of deferred taxes, corresponds to theNet Asset Value (NAV).

The company made a gain of €113.4 millionin 2004 through the increase in value ofinvestment properties. This gain correspondsto the increase in valuation of operatingshopping centres and the valuation gain ofthose properties opened during the year.In 2004, yields fell considerably in thePortuguese and Spanish markets which led toa sharp increase in the value of its properties.

Sierra Developments recognises as incomethe increase in value of the centres underdevelopment. These non-realised gains onrevaluation are excluded from theconsolidated accounts of Sonae Sierra since,under IAS, value created is only recognisedat the time of opening.

Minority interests reached €44.5 million andcorrespond almost entirely to direct andindirect profits attributable to the externalinvestors in the Sierra Fund and to EroskiGroup, our strategic partner in Spain.

Sonae Sierra Consolidated Profit and Loss Account (€000)2004 2003 % 04/03

Direct Income from Investments 184,586 165,872 11.3%


Other costs 5,481 7,039 -22%

Direct costs from investments 76,943 67,805 13%

EBITDA 107,643 98,067 9.8%Depreciation 6,161 5,624 10%

Recurrent net financial costs 39,230 31,862 23%

Direct profit before taxes 62,252 60,581 3%

Corporate tax 11,497 18,938 -39%

Direct profit 50,755 41,643 22%

realised on properties 1,654 110,089 -98%

Value created on investments 113,376 86,065 32%

Indirect income 115,029 196,154 -41%

Deferred tax 39,022 -11,279 -

Indirect profit 76,007 207,434 -63%

Net profit before minorities 126,762 249,077 -49%

Minorities 44,511 40,409 10%

Net profit 82,251 208,668 -61%


Centro Vasco de Gama

48


Consolidated Balance Sheet

The company consolidates the Sierra Fund infull given that it holds effective control with50.1% of the capital and managementfunction.

The company holds total assets of €2,639billion at the end of 2004, of which around€245 million corresponds to cash and short-term investments. Although there was asignificant increase in debt during 2004 due toits refinancing policy for operating investmentproperties – in particular NorteShopping(Porto, Portugal) and Centro Vasco da Gama(Lisbon, Portugal) – and the financing ofshopping centres opened in 2004 – inparticular Dos Mares (Murcia, Spain), AvenidaM40 (Madrid, Spain), Luz del Tajo (Toledo,Spain) and Zubiarte (Bilbao, Spain) – thecompany nonetheless has a solid financialposition. Gearing, measured as netindebtedness as a percentage of total assetsless cash and equivalents, reached aconservative 28.8%.

Development risk, measured as amountinvested and to be invested to concludeprojects under development in percentage oftotal assets plus amounts needed to concludethe same projects, increased from 31.0% to33.4% due to new committed projects in Italy.

Sonae Sierra Consolidated Balance Sheet (€000)31-12-2004 31-12-2003 Var. 04/03

Investment properties 1,984,733 1,582,306 402,427

Properties under development and others 246,117 231,088 15,029

Goodwill 18,989 9,484 9,506

Deferred taxes 18,885 17,513 1,371

Other assets 125,206 134,044 (8,838)

Deposits 245,212 290,267 (45,055)

Total assets 2,639,142 2,264,701 374,440

Net worth 821,818 747,220 74,597

Minorities 250,077 194,630 55,447

Bank loans 933,970 764,778 169,192

Shareholder loans from minorities 95,105 135,966 (40,861)

Deferred taxes 315,807 265,253 50,554


Total liabilities 1,567,247 1,322,851 244,396

Net worth, minorities and liabilities 2,639,142 2,264,701 374,440


Ratios 31-12-2004 31-12-2003

Gearing 28.8% 24.0%

Interest Cover 2.67 2.84

Development Risk 33.4% 31.0%

Sonae Sierra had a consolidatednet profit of €82.3 million.


49

50

Sonae Sierra In Review 2004Corporate Responsibility

Achieving this balance is crucial to the sustained development ofour company.

Sonae Sierra’s corporate culture is closely aligned with the basicprinciples of corporate responsibility. Our core values includeresponsibilities towards our employees and the community, and forpolitical independence.

We are conscious of the inter-relationship between the economy, societyand the environment, believing that our long-term business successdepends on outstanding performances in relation to all three. Werecognise that this requires a thoughtful approach to doing businesswhich can only be achieved through vigilant risk management and amodern attitude towards new opportunities.

Our goal is to be at the forefront of the industry in relation tocorporate responsibility. We are committed to continuously challengingthe status quo in order to find innovative and more sustainable waysof developing and managing shopping centres. We are also dedicatedto being a learning organisation, testing our performance againstdemanding standards in order to achieve continuous improvement.

Our aim is to nurture strong and lasting relationships with all ourstakeholders, always honouring our commitments while maintainingour reputation for consistency and excellence.

As a contributor to everyday life, we play a proactive role in trying tochange society through education and awareness-raising campaigns,and by capitalising on our ability to communicate with the public whovisit our shopping and leisure centres.

This all-embracing Corporate Responsibility policy has the fullendorsement of the Executive Board and will be implemented throughthe achievement of more detailed objectives and targets across keyimpact areas. This particular policy is accompanied by stand-alonepolicies for both Environment and Safety & Health.

Álvaro Portela

Chief Executive Officer

Corporate Responsibility

Sonae Sierra’s mission is to create value forshareholders while taking into account its socialresponsibilities towards other important stakeholders,including our partners, retailers, employees and thelocal communities we serve.


51

It’s about Value...

Further information on Sonae Sierra’s management of Corporate Responsibility and its detailed performance in practice can befound in the separate document accompanying this Annual Review 2004.

52


Our Corporate Responsibility objectives

During the course of 2004, we made significant progress in formalising our approach to Corporate Responsibility (CR).We have developed an overarching CR policy and identified a set of long-term CR objectives which reflect the mostsignificant economic, social and environmental issues affecting our business.

Our approach to CR management is underpinned by our corporate values and based on a model which seeks toachieve continuous improvement over time.

We have set ourselves a number of objectives designed to help us achieve the commitments set out in our CR policy.These are:

To make a positive contribution to economic prosperity

We seek to achieve this by:

» delivering outstanding financial returns through the implementation of a long-term business strategy, settingrealistic yet challenging objectives;

» conducting business in an honest and reliable manner, operating to the highest standards of propriety andtransparency;

» identifying, prioritising and attentively managing significant business risks and complying with strict standardsof corporate governance;

» improving local economic conditions in and around investment properties by creating new employmentopportunities and providing high quality facilities for local retailers and shopkeepers;

To ensure that our core business activities improve the quality of life of those they affect

We seek to achieve this by:

» anticipating and preventing all safety and health risks affecting our sustainable growth, with the ultimate goalof achieving zero accidents;

» respecting and valuing all our employees by investing in their professional and personal development andensuring they feel empowered to contribute to our business decisions;

» delivering a high quality service and experience to both tenants and visitors, and proactively engaging with themon environmental and safety concerns;

» being sensitive to, and investing in, local communities where we operate;

» fostering loyalty amongst frequently used suppliers, seeking to help and encourage them to adopt moreresponsible business practices;

» listening to, and responding to, the needs and concerns of all stakeholders and communicating openly about ourCR performance.

To safeguard the environment for both current and future generations

We are committed to:

» the progressive use of ecological efficiency as a reference point for management and competitiveness;

» conceiving, implementing and operating undertakings in an environmentally responsible way;

» continuously improving the environmental performance of our undertakings, products, processes and activities;

» ensuring conformity with environmental legislation and other environmentally applicable regulations, adoptingresponsible standards in cases in which legislation is incomplete or non-existent;

» defining our environmental objectives and targets, which include the improvement of environmental information,the revaluation of environmental resources, the prevention of pollution and reduction of polluting emissions andthe development, disclosure and participation of those involved.


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Monitoring our performance

These CR objectives are accompanied by a setof annual targets which we have set ourselvesfor the purposes of further improving bothour management and performance across keyimpact areas. Our performance is measuredby a set of key performance indicatorscarefully selected to reflect both the natureand scale of our business activities.

Environmental Management

We have an Environmental ManagementSystem (EMS) in place since 2000. Itsprocedures cover the most significantenvironmental impacts arising from ourbusiness activities. These include:

» Investment

» Design and architecture

» Construction

» Operational management

Internal audits for the implementation of theEMS are undertaken at all operationalshopping centres and all sites underdevelopment.

In addition to minimising our own adverseenvironmental impacts, we are keen to helpand encourage tenants, visitors and suppliersto protect and preserve the naturalenvironment through their own actions.

Safety & Health Programme

Our Personæ Programme is a four-yearproject, introduced in 2004, with the strategicobjective of accelerating and developing socialresponsibility through education andknowledge transfer.

The Programme is being managed inassociation with Dupont Safety Resources andhas five principal objectives:

» to develop a culture which increases socialresponsibility awareness and minimisesrisks;

» to ensure responsible behaviour throughcommonly adopted values;

» to leverage resulting operational disciplineinto productivity and quality;

» to achieve alignment of all Sonae Sierrabusinesses;

» to enhance Sonae Sierra’s image, andthereby increase shareholder value.

By the end of 2004 the Programme had ateam of three full-time staff drawn fromSonae Sierra plus five full-time consultantsfrom Dupont Safety Resources who hadbegun the implementation process acrossall the countries we operate in. With threedistinct phases, Foundation, Performanceand Recognition, the Programme has over200 deliverables.

Risk management

Our Risk Management policy covers all ourbusiness operations.

During the year we undertook due diligenceactivities in connection with the Sierra Fundwhich included technical, legal, fiscal, financial,environmental and insurance audits on theshopping centres which have been acquired bythe Fund and in the centres opened in 2003and 2004. These include Parque Atlântico(Ponta Delgada, Portugal), Estação Viana (Vianado Castelo, Portugal), Avenida M40 (Madrid,Spain) and Dos Mares (Murcia, Spain). We alsocarried out security and safety audits in allthese centres.

In Portugal external assessments at our CentroColombo (Lisbon), NorteShopping (Porto),GaiaShopping (Gaia), CoimbraShopping(Coimbra), MaiaShopping (Maia), andViaCatarina (Porto), were conducted by GEGAPS to identify the potential for propertyloss and assist with loss prevention efforts.

MedeiraShopping

AlgarveShopping

Our aim is to nurture strong and lastingrelationships with all our stakeholders,always honouring our commitmentswhile maintaining our reputation forconsistency and excellence.

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Sonae Sierra In Review 2004Board of Directors

Board of Directors

Executive Directors

from left to right

Álvaro Portela

CEO with direct responsibility for investments,institutional relations, environment, safety andhealth and corporate communications

João Pessoa Jorge

Director, responsible for all the company’s businessin Brazil, where he resides

José Edmundo Figueiredo

Director, responsible for finance, management control,legal, mergers and acquisitions and back office

Pedro Caupers

Director, responsible for all the company’soperations, including shopping centre management,marketing and letting

Fernando Guedes Oliveira

Director, responsible for expansion, design,architecture and development in Europe

Non-Executive Directorsfrom left to right

Belmiro de Azevedo

Non Executive Chairman

Ângelo Paupério

Non Executive Director

Jeremy Newsum


Neil Jones


The Board of Directors of Sonae Sierra remained unchanged in 2004 in terms of the number of members.There are nine Directors on the Board, of whom four are non-executive:

Sonae Sierra In Review 2004Board of Directors

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Senior Managers

from left to right

Ana Guedes Oliveira

Responsible for investment and asset managementin Europe

Adrian Ford

Responsible for new business in Germany, Italyand Greece

Joaquim Pereira Mendes

Responsible for legal, mergers and acquisitions

José Quintela

Responsible for conceptual developmentand architecture

José Falcão Mena

Responsible for developments in Iberia

Luís Marques

Responsible for back-office and human resources

João Correia Sampaio

Responsible for shopping centre managementin Portugal

Pietro Malaspina

Responsible for Sierra in Italy, where he resides

Ted Kupchevsky

Responsible for developments in Germany, wherehe resides

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Sonae Sierra In Review 2004Future and Prospects

The year 2005 will be one of sustainedgrowth in all the company’s key businessindicators, based on a continued policy ofmanagement excellence of those assets bothin operation and owned by third parties,investment in the development of newshopping centres, and investment inacquisition in markets where the companyis present.

The business will continue to follow thestrategic plan of growth andinternationalisation conceived to apply up to2007. This consistent course of action shouldlead to sustained results even in circumstancesof economic uncertainty.

The Future

The outlook for growth in Europe remainspositive although recovery is slow.

Prospects

Sonae Sierra will continue tobe a shopping and leisure centrespecialist which takes an integratedapproach to its business.It will stay focused on the markets whereit is already present, with the objective ofdelivering innovative, modern and spiritedhigh quality products. In this way, Sonae Sierraaims to be the best international shopping andleisure centre specialist and to achieve aleading position in all the markets in whichit operates.

Luz del Tajo

Luz del Tajo

Designed and produced by MAGEE

Printed by CTD

In Review 2004

passionate about innovation

PORTUGALPORTOLUGAR DO ESPIDO,

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TELEPHONE: +351 22 948 7797

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TELEPHONE: +55 11 3845 5399

FAX: +55 11 3845 4522

www.sonaesierra.com

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ae Sierra In R

eview2004

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