Welcome to Sonae's conference call. During the introduction hosted by Mr. Louis Rice, Sonae's Chief Corporate Center Officer, all participants will be on a listen-only mode. After the introduction, there will be an opportunity to ask questions. If any participant has any difficulty in hearing the conference at any time, please press the star, followed by the zero on your telephone for operator assistance. I will now hand the conference over to Mr. Luís Reis. Please go ahead, sir.
Thank you very much. Hello, good afternoon to all of you, and thanks a lot for attending this call, which has the aim to further give some explanation on the recent acquisition of 20% stake of Sonae Sierra. I have together with me Fernanda Dolivar, which is the CEO of Sonae Sierra, João Dolores, which is the head of our central management team, control team, and Patrícia Pinto, the head of IR. At the end of a brief presentation, obviously, we will be open for questions. Sonae is really very pleased to be able to announce the conclusion of this transaction. We've reached an agreement with Grosvenor to acquire 20% of Sonae Sierra, and with that operation, we will increase our participation from 50% to 70%. Due to that, we have acquired the control of the company.
Just a note, a first note on timing, this transaction is subject to antitrust approvals. The reason for that comes from the fact that precisely we are moving from a joint control between ourselves and Grosvenor to exclusive control of Sonae and Sonae Sierra, and because of that, we have to clear the transaction through the competition authority. We will start in Brussels, and eventually, we will have to also submit it to national authorities. We don't expect any problem arising from that, but we can't be sure if we will be able to conclude the transaction during the first quarter of this year or only on the fourth quarter of this year. Starting to give you some color on the transaction, five key highlights on Sonae Sierra. Sonae Sierra is a company that has more than EUR 7 billion of open market value portfolio of co-owned shopping centers.
Those shopping centers are located in seven different countries, and they are 46 co-owned shopping centers. On top of that, we manage a total of 83 shopping centers in 14 different countries. We render services of development and property management and fund management on commercial real estate in all four continents. Currently, we have 14 development projects in the pipeline. We think this is a very good timing to acquire this 20% because we see the company in a moment of further expansion of its activity. As you are all probably aware, Sonae Sierra has more than 27 years of proven experience in the sector, and it's clearly a leading retail real estate player in the world. Some key figures: as of the end of 2017, the open market value of the assets is above EUR 7.4 million.
We manage more than 9,400 different tenant contracts. We have an occupancy index in the shopping centers we manage above 96%, and the net asset value of the properties we own is slightly above EUR 1.43 billion at the end of 2017. For those of you that already made the calculation, we are paying for the 20% that we are acquiring and for the controlling stake on Sonae Sierra, something that is around 15% below net asset value. This transaction is totally in line with Sonae's rationale of further diversifying portfolio in international geographies. We always repeated that we are quite comfortable from a business standpoint in what regards our portfolio diversification, but we've always also stated that we wanted to further grow our international presence.
Out of all our assets, Sonae Sierra is clearly the one that is more international, that has more opportunities to get further into the internationalization path. It has an impeccable track record in terms of internationalization. We do believe that this is a really important movement for the implementation of Sonae's holding strategy. A final note on accounting methodology. Up until now, and also until we conclude the transaction, Sonae Sierra is being consolidated in Sonae accounts using the equivalence method. You saw the results of Sonae Sierra being consolidated above EBITDA on equity method results and also on indirect results at the bottom of our P&L. As of the moment of the conclusion of the transaction, that, as I said, will be either at the end of the third quarter or eventually during the fourth quarter, Sonae Sierra will be fully consolidated by Sonae.
In order to give you a first glimpse on that, we just published in our investor relations part in our website, we published Sonae Sierra's statutory accounts from 2017. That can give those of you that follow us a first look into what will be the impact of the consolidation of Sonae Sierra in Sonae's accounts. Obviously, we will be consolidating line by line. We obviously expect some changes in turnover in EBITDA, but you shouldn't expect any further changes or any particularly significant changes, for instance, in terms of balance sheet or net debt to EBITDA because this is an almost neutral transaction in what regards those figures. Having said that, I'm now together with myself and all the team available for any further questions that you might have.
Thank you, ladies and gentlemen. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. That is star one to ask a question. The first question comes from the line of Filipe Rocha, who's an analyst. Please go ahead and ask your question.
Hi, good morning everyone. Good afternoon, sorry. Two questions for me if I may. The first one, if you could elaborate a little bit on how Sonae plans to fund this deal, whether it will be long-term debt or existing debt facilities, and what would be the cost of funding? May we assume that the cost of funding will be in line with your average cost of funding? The second question relates to the strategy. The fact that Sonae is assuming the control of the company, should we expect any change in terms of strategic direction of the company, whether you would like to do an acceleration of investment or change the geographical allocation of capital at Sierra?
Finally, whether you could provide us some color on these mechanisms that you have granted to your partner, to Grosvenor, to be able to exit now that they are minority shareholders. Could you give us some color on what are those mechanisms and whether there is already a time horizon for Grosvenor to exit from Sierra? Thank you very much.
Thank you, Philippe. First of all, regarding funding, we will use our current available lines. As you know, we have already a very conservative balance sheet, and we won't need to raise any significant new amounts of funds. You are indeed correct. The cost of funding that you can consider for funding this operation is precisely the one that we already have in Sonae. Regarding strategy, there is really no reason to believe that there is any particular dramatic change in the strategy of Sonae Sierra. Actually, we've been, up until now, very happy together with Grosvenor developing the company very well, so there is no reason to anticipate any change. We know that the company is in a very good moment. It has a significant number of projects in its pipeline, so we will be glad to support the deployment of those projects.
There is no change to be signaled. Regarding the exit, if you read Grosvenor, as I said already today, they are very happy with the partnership. They intend to stay as a minority shareholder. Obviously, in contracts like this, it's usual that both parties agree on exit conditions, but they are really long-term exit conditions, so there's no rush for those conditions to be put in place. I think that for the midterm, this is the kind of company you will place. Sonae holding 70% of Sonae Sierra for at least a significant period of time.
Okay. Thank you very much, Luís.
Thank you. Your next question comes from the line of Tim Attenborough. Please go ahead and ask your question.
Afternoon, Luís. As you, Filipe, have basically asked all my questions. Just two follow-ups on that. We can assume that you have first refusal if Grosvenor wants to lower its stake any further. The second one is just on that, what seems to be a very impressive discount to net asset value. You gave the year-end net asset value number. I mean, has the Brazilian real weakness in any way weighed down the net asset value materially? Those are my two follow-up questions.
No. Actually, regarding the first one, obviously, there are rights for minority and rights for majority of controlling shareholders. We have a very balanced agreement with Grosvenor. We respect each other a lot, and we intend to stay that way. Obviously, we would have a first refusal right. The plan is to continue to develop the company totally aligned with Grosvenor, and all decisions, if there will be any, to change the current partnership will be taken in due agreement, and we fully respect from both parties. Obviously, now we have a controlling shareholding position, and they have a minority shareholding, and I think that both rights are really well protected. Regarding your question, yes, it is a significant discount to net asset value, particularly if you color that discount with the fact that we are buying a controlling stake into the company.
I think that it has no reason with the situation in Brazil. We believe that the Brazilian asset is probably even over-discounted in the way we have it valued currently. We do not think that any reasons besides the negotiation reason regarding to Brazil play the role on the price we are paying.
Okay. Thanks. That's clear. Thank you.
As a reminder, ladies and gentlemen, if you wish to ask a question, please press star one on your telephone. That's star one to ask a question. Your next question comes from the line of José Martins Soares. Please go ahead and ask your question.
Hi there. I hope everyone's well. I have two questions. One is, could you elaborate a little bit more on how this deal came about? Was it initiated by you? Was it initiated by Grosvenor? I struggle a little bit with the discount and the reasons for the discount, given that you're actually getting to pay a premium because you're getting control. In those discussions, do you feel that there was any strategic disagreement, or do you feel that there are certain geographies that you might be more or less interested in? The second question is about change of control regarding Brazil. Are there any clauses that might trigger you doing something on the Brazilian listing? Thank you.
I'll start with the last one. There are no particular clauses regarding Brazil. Actually, Brazil is a company that is listed on BM&FBOVESPA, so it has also transparency obligations regarding the Brazilian stock exchange. There is no even, if you want, clauses regarding Brazil or no particular clauses regarding Brazil. Regarding the deal itself, I think that if you follow the story of Sonae Sierra and particularly this partnership, Grosvenor had already announced, I think, like three years ago that they intended to slightly diminish their exposure to Sonae Sierra, not because they were in any kind of disagreement, but because of some rebalancing of their own types of investment. It's always difficult to explain. To answer your question, indeed, it was Grosvenor that started the process by making that announcement and, in a way, opening that opportunity.
We've always worked to follow that opportunity because we like very much this asset, and we know the asset quite well. Eventually, in this process, regarding the price and the fact that Sonae is probably the natural owner, the management team of Sonae Sierra has always been very close to Sonae, has always been part of the Sonae management team. The knowledge of the asset is probably bigger on our side than on the other partner side. All of that has played a role in the final definition of the price. Indeed, we are very glad with the final price. Maybe it took a little bit longer than what we expected, but finally, we reached the agreement. I can only say that from Sonae's perspective, it's a deal that we are very proud of.
Thank you. Can I just do a small follow-up on that? Yeah. I would understand that Grosvenor would want, three years ago, to diminish exposure to a rather problematic country, not a very good company in a rather problematic country. We all know what Portugal has been through over the past few years and how people expected things to be in 2015 versus what people expect them to be now. It took three years for them to make a decision, or did they forget about it and came back to it? Apologies for wanting to get a little bit more detail on that. It's just that if that is the case, that this 15% discount is appropriate. I agree with all that you've said about Sonae being the natural owner of the asset.
Should investors also put 15% discount to the whole of your holding in Sonae Sierra?
I don't think you should. I don't think you should because we've been showing in recent transactions, and I think that you will be seeing on further transactions in each one of the assets that we have been able to sell them at almost full NAV, if not in some cases above NAV when we sell on an asset-per-asset basis. You are not only buying the assets. You are also buying services. You are also buying other parts of the company. There is, in fact, a better knowledge of the assets from Sonae, and that also deserves, in a way, some premium, and we end up getting it. There is something that you said that I wanted really to clarify because you said that Sierra might be seen as a Portuguese company.
Please be aware of the fact that out of the 46 shopping centers that we control or co-control or own or co-own, only 21 are in Portugal, so less than average at these NAVs than in Portugal. Be careful with that.
Sure. Understood.
There is pretty much an international company. The position of Grosvenor was less of a rebalancing geography and more of a rebalancing the types of investments they have. It has to do with Grosvenor's strategy, but you have to ask that to Grosvenor. They've announced the rationale to be on their end, and you'll see that it has nothing to do with geography. Okay? That's completely different.
Understood.
On the other dimension, I think that, it will even further play into the good deal from the eyes of Sonae within is that we are not only buying that NAV. We are buying all the potential of the developments. And you know that on a company like this, the vast majority of results comes from developments, and we currently have 13 developments on the pipeline. You should also not be glad the value of our services platform. We have services on more than four continents. We manage 83 shopping centers. There is also a value that goes beyond NAV on services and on management of shopping centers. Indeed, we think that this is a particularly good deal, and it might have taken three years because of that too.
Very good. Thank you very much.
Thank you. There are no further questions at this time. Please continue.
Okay. I think this was a pretty straightforward deal, but due to the importance of it and strategic importance, we decided to convey this call. Thank you all again for attending. Obviously, we will be again available in August when we will be presenting our first quarter results. Thank you very much for attending. See you.
Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for participating. We will now disconnect.