1. Deutsche Bank Global Emerging
Markets Conference
New York, September 6-8th, 2006
Second Quarter 2006 Launches
Blue Land – Rio de Janeiro
Belle Vue – Porto Alegre Paço das Águas – São Paulo Vistta Ibirapuera – São Paulo Beach Park Living - Fortaleza
1
2. “Safe-Harbor” Statement
We make forward-looking statements that are subject to risks and uncertainties. These statements are based on
the beliefs and assumptions of our management, and on information currently available to us. Forward-looking
statements include statements regarding our intent, belief or current expectations or that of our directors or
executive officers.
Forward-looking statements also include information concerning our possible or assumed future results of
operations, as well as statements preceded by, followed by, or that include the words ''believes,'' ''may,'' ''will,''
''continues,'' ''expects,'‘ ''anticipates,'' ''intends,'' ''plans,'' ''estimates'' or similar expressions. Forward-looking
statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they
relate to future events and therefore depend on circumstances that may or may not occur. Our future results
and shareholder values may differ materially from those expressed in or suggested by these forward-looking
statements. Many of the factors that will determine these results and values are beyond our ability to control or
predict.
2
3. Agenda
Page
2Q06 Update 3
What’s Going On the Brazilian Housing Industry? 15
Why Gafisa is Better Prepared to Take Advantage of This Market? 20
Appendix 34
3
4. 2Q06: Gafisa Reports 151% Growth in Launches and 168% in Pre-Sales
Launches (R$ mm) Pre-Sales (R$ mm)
274 229
New Markets
New Markets 46 Rio de Janeiro 16
Rio de Janeiro São Paulo
Sao Paulo 58
%
% %
%
1 51
51 94 1 68
68
1 1
109 85
11 12 154
54 134 35
44 39
2Q05 2Q06 2Q05 2Q06
Pre-sales mix breakdown – 2Q06
22%
HIG
22%
MHI
69%
MID
AEL
LOT
COM
47%
Segmentation (Prices in R$/sq.m)
HIG – High Income: > 3,600 MHI – Middle High: 2,800 < > 3,600
MID – Middle Income: 2,000 < > 2,800 AEL – Affordable entry level: 1,800 < > 2,000
COM – Commercial LOT – Urbanized lots
4
7. Despite the strong results in pre-sales, Gafisa is still being impacted by the
external events of 2004…
Gafisa is now well positioned for the Future
Timeline
Largest Real Estate Developer Turnaround Building Value
► Market Leadership ► New Management ► Leadership Position
► High Growth Rates ► Capital Restructuring ► Pure National Player
► 1954 - Gafisa IPO
is founded Pre-Sales (R$ mm)
451
► GP Investimentos
Acquires Control
333 325
293
254
2004: 2005:
► 1997: GP invests, ► Company ► EIP acquires
professionalization becomes capital 36% of Gafisa
of company begins constrained,
149 external
shareholder
event occurs
81
46
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
7
8. … as We Are Recognizing Previous Years Revenues following the PoC Method
2Q06 Pre-sales x Recognized Revenues (R$000)
Developments Pre-Sales % of Pre-Sales Revenues % of Revenues
143,699 84% 16,042 11%
Launched in 2006 63%
Launched in 2005 48,347 21% 44,542 29%
Launched in 2004 16,557 7% 33,951 22% 59%
Launched in 2003 13,832 6% 36,963 24%
Launched in 2002 6,436 3% 8,240 5%
Others na na 12,809 8%
Total 228,870 100% 152,547 100%
8
9. Historically, almost 90% of a year’s earnings are based on previous’ years
launches
Income Statement doesn’t necessarily reflect the economics of the Sector
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
However, earnings “lag” provides strong predictability
9
10. Strong Pre-sales performance will positively impact future earnings
Currently, Gafisa has approximately R$243 million of results to be recognized (a 91% growth
compared to 2Q05)…
Revenues and Results be Recognized (R$ mm) Backlog Margin (%)(2)
43.3%
41.1%
2Q05 1Q06 2Q06 (c)/(a) (c)/(b)
(a) (b) (c) % %
Sales to be Recognized 383,2 473,4 560,7 46% 33.1%
18%
Costs of Units Sold
(256,3) (278,9) (317,8) 24% 14%
to be Recognized 1
Results to be 91%
126,9 194,5 242,8 25%
Recognized
Margin to be
33.1% 41.1% 43.3%
Recognized
Note:
1 Includes only land and construction costs
2 Backlog Margin is not equal to Gross Margin
2Q05 1Q06 2Q06
… with margins record high margins of 43.3%
10
11. Predicting the Housing Market
Following the Housing Sector more closely
ECONOMIC & DEMOGRAPHIC
Population Trends ► Gives a color on the
Employment Rate
main pillars that
MACRO
Interest Rates
Household Growth
Real Income support companies
Cost of Living
growth strategy.
Taxes
SECTORIAL DATA
► Micro Overview
Mortgage Availability
Homeownership (%)
► Provides an indication
Housing Starts/Permits
BarriersProvides an
– to entry
MICRO
of the potential
Natural Barriers to Grow
indication of the
Ademi / Secovi Sales Speed demand for new
potential demand
COMPANY WISE homes.
Leading Indicators
for new homes.
11
12. Predictors Guide – Monitoring Sector Leading Performance Indicators
The PoC Method provides Strong Predictability of Earnings
Indicator Why it is important?
Launches Potential growth of Pre-sales?
Current mix of products is aligned with company’s strategy?
Concentration or diversification in geographical terms? a
Pre-Sales Are launches being effective?
How is receptivity of products in the market
Pre-sales from recent launches or from old inventory? a
Sales to be recognized Potential revenue growth to be recognized in future
periods
a
Backlog Margin to be Is it going up or down?
recognized How does Backlog Margin translate to Gross Margin?
a
12
13. Strong Financial Position…
…coupled with focus on working capital management
(R$ million) 2Q06 2Q05 1Q06
Short Term Debt 85 38 86
Long Term Debt 191 102 199
Total Debt 276 140 285
Cash and Cash Equivalents 423 119 481
Net Debt (Net Cash) (147) 21 (196)
Shareholder’s Equity 806 321 788
Total Capitalization 1,082 461 1,073
Net Debt/ Equity -18% 7% -25%
In order to optimize its working capital, Gafisa has been demanding new product from banks:
Gafisa and Banco HSBC offer pre-approved mortgage in Santo Andre (Sao Paulo)
Gafisa and Banco Santander Banespa Launches No-paperwork mortgage in Rio de Janeiro
Gafisa and Banco Santander Banespa offer mortgage with discount on rent during construction period
More recently, Gafisa’s Board approved a R$100 million securitization of Receivables from clients
13
14. Our Goals for 2006
Continued Growth Pace
► Launching growth guidance for 2006 of 25-28% in nominal currency terms
Margin Expansion
► EBITDA margin for FY06 of 16-17% (as % of Net Revenues)
14
15. Agenda
Page
2Q06 Update 3
What’s Going On the Brazilian Housing Industry? 15
Why Gafisa is Better Prepared to Take Advantage of This Market? 20
Appendix 34
15
16. Robust Growth Prospects in Brazil and the Favorable Demographics Make It Difficult
to Ignore Its Potential
Brazil’s housing market presents large and sustainable demand…
Brazil’s Economic Trends Favorable Housing Market Trends
► Largest economy in South America ► Attractive demographics: young and growing
population
► Politically stable and fiscally conservative
► Strong pent-up demand:
► Strong economic fundamentals
– Unemployment rate: declining – Housing deficit currently grows at a pace
– Interest rates: declining of 300,000 units per year
– Country risk at historical lows
Interest Rates (Selic) - Historical and Forward Brazil Demographic Pyramid - 2005
29 75-79
27
65-69
25
55-59
23
45-49
21
19 35-39
17 25-29
15 15-19
13 5-9
out fev jun out fev jun out fev jun out fev jun out fev
02 03 03 03 04 04 04 05 05 05 06 06 06 07 -10 -8 -6 -4 -2 0
0 2 4 6 8 10
Source: Central Bank and Focus (Market Estimates) Source: IBGE
…which is expected to continue significantly exceeding supply
16
17. Commercial banks are coming to fuel the housing sector
Increasing credit availability and new regulation will support the potential of the sector
Timeline - Recent Developments in the Housing Sector
R$ billion ► 2005 - Individuals gets Tax
exempted on MBS
► 2006 - Bradesco plans to triple
Investments
mortgage lending activity this
► ABN Amro, Santander and year to nearly R$2 billion.
HSBC reduce Mortgage
► Itaú launches 15-yr fixed
Rates to 8%p.y from 12%p.a. 20,3 mortgage rate (18.85%p.a.)
► Itaú, Bradesco, Unibanco ► CEF comes back to middle
follow suit income market (10.9%p.a.)
► Santander launches 10-yr ► Santander launches 20-yr fixed
fixed mortgage rate (21%p.a.) mortgage rate (16.9%p.a.)
► 2004 - 10,3
Resolution 13,9 ► Gafisa, HSBC and Santander
► 2003 - Central 10.931 Improves offer pre-approved mortgages
Bank increases Foreclosure 13%
► Central Bank may allow
bank regulation paycheck discount for mortgage
requirement to lending
invest in the 9,4
sector 9,0 9,1
6,7 83% 5,3
6,0
4,9
109% 10,0
4,5
2,9
104%
4,8 4,1
3,0
2,2 2,0
2003 2004 2005 2006E 1H05 1H06
Mortgage by Commerc ial Bank s¹ CEF Mortgage Loans
Sources: ABECIP, Central Bank. ¹ Total mortgage lending using savings
deposits funding (channeled-lending requirement). 17
18. The Development of the Mortgage Market will Directly Impact Housing
Affordability…
…with banks taking the position as main providers of financing
Current Financing provided Current SFH Mortgage Expected Mid-Term
by Homebuilders (banks) Mortgage Scenario (banks)
Unit Price (R$) 200,000 200,000 200,000
Loan-to Value – LTV (%) 60% 60% 90%
Down Payment (R$) 80,000 80,000 20,000
Mortgage Financing 120,000 120,000 180,000
Real Interest Rates 12% p.a. 12% p.a. 8% p.a.
Tenor (years) 6 15 23
Monthly Installment (R$) 2,308 1,393 1,396
Required Monthly Household 5,573 5,583
Income (R$) 9,232
Gafisa’s Mortgage Penetration (Sao Paulo) Gafisa’s Mortgage Penetration (Rio de Janeiro)
70% 70%
% Mortgage / Total Pre-sales % Mortgage / Total Pre-sales
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
2004 2005 1TRI06 2TRI06 2004 2005 1TRI06 2TRI06
High Income Mid-High Middle High Income Mid-High Middle
18
19. High Fragmentation is also an opportunity
Gafisa´s strong brand and market positioning are a competitive advantage against the many
family-owned and non-professional competitors
Market Share in São Paulo (2005) Market Share in Rio de Janeiro (2005)
Cyrela Brazil Realty
8%
13%
5%
Rossi Residencial
2% Agenco
13%
Company S.A.
3%
Others
Others
80% Tecnisa RJZ Cyrela
42%
2% 12%
Carmo Calçada
CHL 11%
9%
04-05 04-05
2005 2005
Growth Growth
Units (#) 33,748 24% Units (#) 8,832 23%
Launchings (R$ bi) 9.0 19% Launchings (R$ bi) 3.0 2%
Source: EMBRAESP and SECOVI Source: ADEMI
Well capitalized companies will benefit
from increasing demand
19
20. Agenda
Page
2Q06 Update 3
What’s Going On the Brazilian Housing Industry? 15
Why Gafisa is Better Prepared to Take Advantage of This Market? 20
Appendix 34
20
21. Well Defined 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
21
22. Gafisa: 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
22
23. World-Class Shareholders and Corporate Governance
Led by GP and EI, Gafisa is the only homebuilder with an institutional shareholder base …
Current Shareholder Structure 1
► 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
Cemar, among homebuilder
others
► Founded by Sam Zell
21.8% 27.4% 50.8%
Superior Governance Standards
► Novo Mercado listing ► 2 independent board
► 100% tag along rights members
► US GAAP ► Audit Committee
Note: 23
… and commitment to superior corporate governance standards
1 Excludes treasury stocks
24. A Diverse Product Mix Positions Gafisa to Take Advantage of Positive Environment
Gafisaeographical expansion offers further growth potential in the medium term
The Gold-SP Blue -RJ Side Park - SP Lorian - SP
High-End Middle and Mid-High Affordable Entry Level Land Subdivision
Size 100 to 500 sq.m 70 to 150 sq.m 45 to 65 sq.m 100 to 1,000 sq.m
# of Units up to 100 150 to 300 100 to 500 100 to 400
Price Range Above 400K R$ 150k to 400K R$ 70k to 130K Up to 300k
Household Income¹ Above R$150,000 R$ 70,000 to R$150,000 R$ 32,000 to R$ 62,000 Diverse
Commercial Banks and 100% CEF (directly to
Financing Provided by Gafisa Provided by Gafisa
CEF buyer)
Average Price sq.m Above R$3,600 R$ 2,000 to R$ 3,600 R$ 1,800 to R$ 2,000 R$ 150 to R$ 800
% of 2006 Launches² 19% 62% 2% 10%
Typical Project Margin 37% 31% 28% 44%
24
Notes:
¹ Annual household income. ² Gafisa has commercial buildings which accounted for the remaining 7% of the 2006 Launches
25. Gafisa has a Leadership Position in Brazil’s Main Markets
Sao Paulo and Rio de Janeiro represent, respectively, 36% and 32% of Gafisa’s Launchings
Sao Paulo Rio de Janeiro
► Main Characteristics: ► Main Characteristics:
6% of Brazilian population 3% of Brazilian population
10% of Brazilian GDP 5% of Brazilian GDP
One of the highest GDP per capita in Brazil (72% One of the highest GDP per capita in Brazil (38%
higher than Brazilian average) higher than Brazilian average)
Over 4 million homes (~ 8% of Brazil's Total) Around 2 million homes (~ 4% of Brazil`s total)
Market Size in 2005: R$9 billion Market Size in 2005: R$3 billion
► Growth Opportunities: ► Growth Opportunities:
Projects targeted to the middle income bracket Projects oriented to middle and high-income in
Despite the lower demand for luxury housing, Barra da Tijuca and Jacarepaguá, fastest-growing
there are several opportunities for innovative and region in the city (70% of Rio’s market)
differentiated projects Diversifying around suburban areas of Rio de
Huge unmet demand for Low Income projects due Janeiro State
to lack of a regulatory framework
25
26. Present in 12 states, Gafisa is one of the most geographically diverse
builders in Brazil
Geographical expansion offers further growth potential in the medium term
Gafisa’s National Reach Drivers of Growth
Northeast
North • Second Home, Foreign
• Rapidly Expanding Export Investments
Platform
• Brazil’s New Agricultural Frontier
Mid-west
• High Dependant on the Agricultural
Recently signed Business South
partnerships • Nation’s Highest Income Per
Capita
► Why expand through JVs with local partners?
► How Gafisa is differentiated in “New Markets”?
Develop local partnerships to leverage regional
market knowledge, legal skills, risk mitigation and Strength of its brand and its track record in São
entry barriers Paulo and Rio de Janeiro
► Growth Opportunities Innovative project concepts
Multiple drivers of other markets mitigate growth Differentiated project designs
risk
Small and poorly capitalized competitors Delivery of products on time and demand-aligned
Better margins payment conditions
Business Owners Organizational Structure provide Aggressive marketing strategy
a totally focused local management integrated and
supported by Gafisa Corporate Unit in Sao Paulo
26
Although SP and RJ are still core markets, “New Markets”
already represents 32% of Gafisa’s Launches
27. Professional Management and Superior Organizational Structure
A superior organizational structure and professional management yield results …
Gafisa People and its culture
Professional, experienced and motivated management focused on value creation
Committed to In depth Ownership
Results driven
develop industry Culture
culture
leaders knowledge
Management, on 40% to 60% of More than 25
4 out of 7
average, with compensation managers hold
directors joined
more than 14 linked to 3.6% of the
the company as
years of aggressive company
interns
experience targets
A unique business model in the industry oriented towards maximizing shareholder
profitability
27
… and make Gafisa a scalable business platform
28. Efficient and Scalable Organizational Structure Designed to Sustain Growth
Gafisa’s Business Owner Structure is Unique on the Sector
Better execution, goals,
Senior standardization, best
Management practices
Regional Regional Geography
Operation Operation Operation … Operation Operation Operation …
Operations
(Construction) …
Goals definitions,
Performance
management, best Sales Performance …
practices,
standardization, Human Resources …
economies of scale
IT …
Finance
…
Back-office
…
Tasks
28
29. Efficient Business Model
An efficient business model, based on three main pillars…
Land Acquisition High Asset Turn Over
Proven ability to source land High sales velocity: 70% of
Acquire land mostly via swap units sold before construction
Minimize cash outflow Securitize client receivables to
Alignment with landowner
ROE
optimize working capital
Low Cost
Operations
Builds for some of Gafisa´s main competitors
Standardized construction techniques
Innovative materials and techniques
… oriented towards maximizing shareholder profitability (ROE)
29
30. Strategic Land Bank
Land Bank representing 2-3 years of future sales
Land Bank
Potential Units %
by Income Segment Future Sales acquired
Lots & (R$ mm) by swap
High Middle AEL
Com
São Paulo 336 2,118 - 8 846 67%
Rio de
1,032 1,080 - 418 604 90% São Paulo
Janeiro
Other
444 2,115 - 270 638 92%
Cities
Total 1,812 5,313 - 696
2,089 84%
% 23% 68% 0% 9%
Rio de Janeiro
30
31. Even in cities like Sao Paulo and Rio de Janeiro, Land is far from Scarce
A Land bank representing 2-3 years of future sales is enough to sustain our strong growth rates
Verdes Pracas - SP
31
32. Size and Strong Brand Matters in this Sector
“Gafisa” has a very strong appeal to the buyers, with a direct link to its Real Estate products
Strong brand and track record enables it to
enter into swap agreements, paying for the
land with units of the future development
“Safe hands” appeal to the buyers results
higher in pre-sales velocity compared to smaller
players
First look at land and partnership deals
Product and geographic diversity
Strong balance sheets
Scale to leverage processes and supply
agreements
Expertise to underwrite, control and process
land
Attract and retain high talent work force
Palazzo Farnese - SP
Greater relative investment in technology
Gafisa’s brand is one of the best-known in the Brazilian
homebuilding industry
32
33. Gafisa: 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
33
34. Agenda
Page
2Q06 Update 3
What’s Going On the Brazilian Housing Industry? 15
Why Gafisa is Better Prepared to Take Advantage of This Market? 20
Appendix 34
34
35. 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
construction
approvals
approvals
►► Permitting
Permitting
- 6th to 0 month 0 to 12th month 12th to 36th month After 36th month
35
36. 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 Delivery
Purchase
Notes:
1 Construction financing provided with funds from SFH
2 Middle-income with swap agreement project … followed by significant cash in-flows
36
