2. Gafisa: A Leading Homebuilder
Evolution of a World-Class company
1954
► Gafisa is founded
1997
2004 ► GP invests, professionalization of company begins
► Company becomes capital constrained, external shareholder event occurs
2005
► Capital increase from EI (Sam Zell), a strategic investor
► Turnaround begins
2006
► IPO in February 2006: Professionalization continues
► Capitalize on growth opportunities
Gafisa is well positioned for the Future
2
3. Gafisa’s Strategy
Our Strategy
Create the leading residential development company in Brazil based upon sales,
profitability and quality
Maintain land Maintain debt
Strong Focus on high Continued
bank of policy of
revenue return geographic
2-3 years of 40% - 60% net
growth opportunities expansion
future sales debt / equity
3
4. Premier Growth Opportunity
Professional Management
Industry Leadership and
and
Strong Brand Recognition
Established Organization
World-class Shareholders
Geographic
and the Highest Standards
Diversification
of Corporate Governance
4
6. Robust Housing Growth
Brazil’s real estate market presents large and sustainable demand…
Brazil’s Economic Trends Favorable Housing Market Trends
► Largest economy in South America ► Attractive demographics: young and growing
population
► Politically stable and fiscally conservative
► Strong economic fundamentals ► Strong pent-up demand:
– Unemployment rate: declining – Housing deficit currently grows at a pace
– Interest rates: declining of 300,000 units per year
– Country risk: lowest level in 8 years
► New, improving legal framework
1,500 30%
25%
1,200 ► Increasing mortgage availability
20%
Interest Rates
Country Risk
900
15%
600
10%
► Highly fragmented market
300 5%
0 0%
Jan-03 Jan-04 Jan-05 Jan-06
Country Risk Interest Rates
Source: Central Bank, Ipeadata and SECOVI
…which is expected to continue significantly exceeding supply
6
7. Increasing Mortgage Availability
Increasing credit availability and new regulation will fuel the housing sector
Recent Trends Available Credit
0.8%
► New regulation
– Banks required to increase mortgage 18.0
lending
► Ability to repossess in case of default
0.3%
► Developing secondary mortgage market
0.2% 6.0
– True sale and non-recourse structures 0.1% 0.1%
– Asset backed securities: 3.2
1.8 2.2
– R$0.4 bn in 2004
– R$2.0 bn in 2005 2002 2003 2004 1
2005E 2006E1
Volume (R$ billion) % of GDP
► Increasing mortgage affordability
Source: Central Bank, Ipeadata and SECOVI
Note:
1 Based on real estimated GDP growth
Credit still represents a small percentage of GDP when
compared to other countries
7
8. Highly Fragmented Market
Gafisa´s strong brand and market positioning are a competitive advantage against the many
family-owned and non-professional competitors
Market Share in São Paulo (2005) Market Share in Rio de Janeiro (2005)
Cyrela Brazil Realty
8%
13%
5%
Rossi Residencial
2% Agenco
13%
Company S.A.
3%
Others
Others
80% Tecnisa RJZ Cyrela
42%
2% 12%
Carmo Calçada
CHL 11%
9%
04-05 04-05
2005 2005
Growth Growth
Units (#) 33,748 24% Units (#) 8,832 23%
Launchings (R$ bi) 9.0 19% Launchings (R$ bi) 3.0 2%
Source: EMBRAESP and SECOVI Source: ADEMI
Well capitalized companies will benefit
from increasing demand
8
10. World-Class Shareholders and Corporate Governance
Led by GP and EI, Gafisa is the only homebuilding company with an institutional shareholder
base …
Post-IPO Shareholder Structure 1
Selling Shareholder
► A leading investor in real
► Proven track record in estate companies outside
the Brazilian capital of the U.S. Free Float
markets ► Portfolio includes Homex,
– Submarino, ALL, Mexico’s leading
among others homebuilder
► Founded by Sam Zell
23.1% 27.7% 49.2%
Superior Governance Standards
► 2 independent board
► Novo Mercado listing
members
► 100% tag along rights
► US GAAP
Note:
1 Excludes treasury stocks
… and commitment to superior corporate governance
standards
10
11. Diverse Product Mix
Gafisa’s product diversification is a key differentiating strategy…
Middle-High Affordable
Luxury Land
Income Entry-Level
Developments Subdivision
Buildings Housing
Size
(sq.m)
250 90-180 45-60 250-1,500
Average
Price per > R$3,600+ R$2,000-3,600 R$1,200–2,000 R$150-800
sq.m
% of 2005
Contracted 10% 67% 5% 14%
Sales 1
2005 Project
37% 31% 28% 44%
Margin
Notes:
1 Gafisa has commercial buildings which accounted for the remaining 4% of the 2005 contracted sales
11
12. Geographic Diversification
… which is complemented by its geographic diversification (Gafisa is the most diversified
homebuilder in Brazil)
Gafisa’s Location
% of 2005
Markets Characteristics Contracted
Sales
► Leading position
RJ and ► Established presence
82%
SP ► Large and profitable
market
► Few large and well
capitalized competitors
► Diversification
Other
► Strong growth prospects 18%
Regions
► 14 cities in Brazil with
more than 1.0 mm
people
Gafisa´s core markets (SP / RJ)
12
13. Professional Management and Superior Organizational Structure
A superior organizational structure and professional management enable strong growth,
maximizes quality …
Professional Management Superior Organizational Structure
► Only leading Brazilian developer with a ► Results-driven culture
professional management team
► Management is aligned with shareholders
► In-depth industry knowledge – Performance based stock option program
– Management, on average, with more than ► Strict criteria for project approvals through
14 years of experience in the company Investment Committee and Board approval
process
► Senior management with proven track record in
diverse industries ► Standardized procedures (efficient execution
and control)
► Well established internship program
► Modern management system and tools
– 4 out of the 7 directors were part of this
program
► High employee retention levels
… and make Gafisa a scalable business platform
13
14. Efficient Business Model
An efficient business model, based on three main pillars…
Land Acquisition Strategy Low-Cost Operations High Asset Turnover
► Proven ability to source land ► 50-year track record ► High sales velocity: 70% of
units sold before construction
► Acquire land mostly via swap ► Builds for some of Gafisa´s
main competitors ► Securitize client receivables
– Minimize cash outflow to optimize working capital
► ISO 9002
– Minimize permitting risk
► Standardized construction
– Lower capital cost techniques
– Alignment with landowner ► Innovative materials and
techniques
– Tax deferments
► Maintain full control
… aiming at maximizing ROE
14
15. Leadership and Strong Brand Recognition
A long track record of leadership in the sector …
Market Share – São Paulo 1
#2 #3 #1 #12 #2
R$249 mm2 R$280 mm2 R$173 mm2 R$86 mm2 R$340 mm2
2001 2002 2003 2004 2005
Source: EMBRAESP
Notes:
1 Market share based on total sales volume of 100% of the developments launched
2 Total sales value of developments launched (Gafisa’s proportional share)
Market Share – Rio de Janeiro 1
#1 #1 #1 #4 #1
R$140 mm2 R$108 mm2 R$186 mm2 R$51 mm2 R$186 mm2
2001 2002 2003 2004 2005
Source: ADEMI
Notes:
1 Market share based on total sales volume of 100% of the developments launched
2 Total sales value of developments launched (Gafisa’s proportional share)
… made Gafisa’s brand one of the best-known in the
Brazilian real estate industry
15
16. Strategic Land Bank
Our land bank policy is to maintain 2 to 3 years of future sales
Land Bank (December / 2005) Barra da Tijuca - RJ
Potential Units Potential %
by Income Segment Contracted acquired
High Middle Low Sales by swap
(R$ mm)
São Paulo 500 1,421 63 1,009 79%
Rio de
316 2,586 348 711 62%
Janeiro
Lorian - SP
Other
70 333 - 169 100%
Cities
Total 886 4,610 411
1,889 81%
% 15% 78% 7%
16
18. Development Process
Land
Launch Construction Delivery
Purchase
►
►
Market
Market ►
►
Sales: 70% of
Sales: 70% of ►
►
Sales: 30% of
Sales: 30% of ►
►
Securitization
Securitization
research
research units
units units
units ► Bank
► Bank
►
►
Project
Project ►
►
Secure client
Secure client ►
►
Secure
Secure mortgage
mortgage
analysis
analysis financing
financing construction
construction (customer)
(customer)
financing
financing
►
►
Sales strategy
Sales strategy
►
►
Efficient
Efficient
► Internal
► Internal construction
approvals construction
approvals
►
►
Permitting
Permitting
- 6th to 0 month 0 to 12th month 12th to 36th month After 36th month
18
19. Typical Project Cash Flow
The nature of the business requires funding for the first year of development…
Cumulative Cash Flow to Equity 1, 2
Expected ROIC = 35% ► Construction
15
Finance (SFH) ► Securitization of
repayment remaining
receivables
5 ► Beginning of
construction
R$ million
Maximum
exposure: 10% to
12% of sales
(5) contracted
► End of construction
► Customer gets
commercial mortgage
► Project launching financing
(15)
-6 – 0 0 – 12 12 – 36 36 +
months months months months
Land
Launching Construction Deliver
Purchase
Notes:
1 Construction financing provided with funds from SFH
2 Middle-income with swap agreement project … followed by significant cash in-flows
19
22. High Visibility Earnings
Historically, almost 90% of a year’s earnings are based on previous’ years launches
Earnings are recognized under the percentage of completion method
Year 1 Year 2 Year 3
Accumulated Sales (a) 70% 90% 100%
Percentage of completion (b) 15% 65% 100%
Accumulated earnings
11% 59% 100%
recognized (a x b)
Earnings recognition 11% 48% 42%
per year
Earnings “lag” provides strong predictability
22
23. EBITDA and Net Income
Strong 2005 sales will positively impact future earnings
EBITDA (R$ mm) and EBITDA Margin (%) Net Income (R$ mm) and Net Income Margin (%)
18.9% 19.1%
13.4% 84 14.1%
13.2% 12.4% 11.6%
7.9%
64 66 65 5.6%
4.2%
51
42
26 27
20
15
2001 2002 2003 2004 2005 2001 2002 2003 2004 2005
EBITDA EBITDA Margin Net Income Net Income Margin
23
24. Future Earnings
Currently, Gafisa has approximately R$169 million of earnings to be recognized (37% increased
compared to 2004)…
Earnings to be Recognized (R$ mm) Nominal Gross Project Margin (%)
40% 39%
Dec/2004 Dec/2005 38%
36%
Sales to be Recognized 437 436
28%
Costs of Units Sold
(314) (267)
to be Recognized 1
Profit to be Recognized 123 169
Nominal Gross Project Margin 28% 39%
Note:
1 Includes only land and construction costs
2001 2002 2003 2004 2005
… with margins restored to near 40%
24
25. Capitalization
Pro Forma Capitalization 1
As of December 31, 2005
Pro Forma
(R$ million) Dec/05 Adjustments Post IPO
Short Term Debt 54 (10) 45
Long Term Debt 263 (18) 245
Total Debt 317 (27) 289
Cash and Cash Equivalents 134 456 590
Net Debt (Net Cash) 183 (483) (300)
Shareholder’s Equity 300 483 783
Total Capitalization 617 456 1,073
Net Debt / Equity 61% (38)%
Notes:
1 Capital increase from EI Fund II Brazil, LLC of R$6.2 million
Use of Proceeds (%)
Launching of new development 50%
Acquisition of land 20%
Working capital 20%
Debt amortization 5%
Investment in existing operations 5%
Total 100%
25
26. Premier Growth Opportunity
Professional Management
Industry Leadership and
and
Strong Brand Recognition
Established Organization
World-class Shareholders
Geographic
and the Highest Standards
Diversification
of Corporate Governance
26
