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February 3, 2006

S hopping Centers in Puerto Rico Challenges and Opportunities 2006-2010 International Council of Shopping Centers February 3, 2006 The Puerto Rican Paradox An island that measures 100 x 35 miles Population of 3.9 million people Unemployment rate of 11% Income per capita is 1/3 of US

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February 3, 2006

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  1. Shopping Centers in Puerto Rico Challenges and Opportunities 2006-2010 International Council of Shopping Centers February 3, 2006

  2. The Puerto Rican Paradox • An island that measures 100 x 35 miles • Population of 3.9 million people • Unemployment rate of 11% • Income per capita is 1/3 of US • Average sales per square foot in PR malls is 23% > US

  3. World – renowned retailers have their highest revenue stores in PR • JC Penney • Sears • Office Max • Western Auto • Pep Boys • Blockbuster Video • Taco Maker

  4. Natural Systems in Puerto Rico

  5. Main Shopping Centers in Puerto Rico, 2005

  6. Location of Top Shopping Centers 365,125 Plaza Guayama Centro Gran Caribe Norte y Sur 420,000 San Juan (2) 436,440 Plaza Palma Real Carolina (3) Mayagüez (2) 450,000 Ponce Towne Center (Ponce 2000) Caguas (2) 450,000 Rexville Towne Center Santa Rosa Mall 465,667 Ponce (2) Hatillo (1) Plaza Rio Hondo 500,000 Bayamón (4) San Patricio Plaza 520,597 Guaynabo (1) Western Plaza 550,000 600,000 Humacao (1) Montehiedra Town Center Vega Baja (1) Las Catalinas Mall 600,000 Guayama (1) 600,900 Plaza Escorial Plaza del Sol 670,180 670,218 Plaza del Norte Plaza del Caribe 683,000 Los Colobos Shopping Center 800,200 Plaza Centro Mall 980,000 Mayagüez Mall 1,100,000 Plaza Carolina 1,124,000 2,358,000 Plaza Las Américas Top 20 Shopping Centers in Puerto Rico (by square footage)

  7. 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% Puerto Rico’s Economy: Historic Growth Historic Average: 4.1% 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04

  8. Per Capita Income 2000-2005 45,000 40,100 40,000 2000 34,897 35,000 2005 30,000 25,000 20,000 15,000 12,947 10,877 10,000 5,000 - Puerto Rico U.S.A.

  9. 48.2% 50% 40% 30% 20% 12.4% 10% 0% Puerto Rico U.S.A. Families under Poverty Level – 2000

  10. $500 $400 $350 $285 $300 $200 $100 $0 Puerto Rico U.S.A. 2000 2003 Shopping Centers – Sales per square foot

  11. 25% 23.3% 20% 17.6% 16.7% 15.6% 15% 10% 5% 0% 1984 1992 1997 2003 Puerto Rico – Underground Economy Estimates

  12. 47.5% 47.0% 47.0% 46.5% 46.2% 45.9% 46.0% 45.4% 45.5% 45.0% 44.5% 1990 1995 2000 2005 Labor Force Participation Rate

  13. Total Employment (000) 1,238 1,240 2.6% 1,230 1,220 1,210 1,206 1,200 1,190 1,180 2004 2005 155 156 154 152 150 147 148 146 144 142 2004 2005 Employment July – February FY 2004 and 2005 Unemployment (000)

  14. Employment in Puerto Rico by Major Industrial Sector 6.8% 11.2% Manufacturing 6.9% Construction 22.6% Trade Finance, Insurance and Real Estate 21.2% Services Government 3.6% 27.7% Others

  15. 210,000 205,099 205,000 200,000 195,000 187,621 190,000 185,000 180,000 175,000 2004 2005 68.8 69 69 68 67.7 68 67 2004 2005 Tourism July – February FY 2004 and 2005 * Tourism is approximately 6% of GNP. Hotels Registration Occupancy Rates

  16. 1,600,000 1,546,529.5 1,550,000 1,500,000 1,433,402.7 1,450,000 1,400,000 1,350,000 2004 2005 Retail Sales FY 2004 and 2005 Retail Sales (000) 8.0%

  17. Retail Sales Sales Growth by Retailers FY 2005 vs. 2004 Sales In Department 8.2% Stores Sales in Shoe Stores 4.2% Sales in Furniture Stores 5.4% Miscellaneous and 7.1% Articles Stores Ladies Apparel Stores 5.7% Sales in Jewelry Stores 7.4% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%

  18. Sales in Supermarkets 8.2% Sales in Drugstores 7.1% Sales in Restaurants & 4.4% Cafeterias Sales Hardware & 6.4% Construction Material Sales in Gas Station 11.5% -17.5% General Merchandise Stores -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% Retail Sales Sales Growth by Retailers FY 2005 vs. 2004

  19. Personal Consumption Expenditures 13.5% 14.1% 6.9% 6.7% 3.2% 15.2% 12.3% 11.1% 17.1% Food Clothing and accessories Housing Household operations Medical care and funeral expenses Transportation Education Business services Others

  20. Value of construction permits ($000) 0.1% 245,500 245,400 245,300 245,200 245,100 245,000 244,900 2004 2005 Number of construction permits Cement Sales In Puerto Rico Total (94 lbs bags) -3.1% 840 4,500 4,000 830 3,500 820 3,000 2,500 810 2,000 800 1,500 1,000 790 2004 2005 Jul Sep Nov Jan Mar May 2005 2004 Construction FY 2004 and 2005

  21. Demand for Housing Sales Distribution 2005-2009 • Housing priced over $300,000 is 11% of the total. • Social interest housing is roughly 50% of total demand. Units From To % 0 90,000 51,896 52.0% 91,000 180,000 19,410 19.4% 181,000 300,000 17,252 17.3% 301,000 480,000 10,051 10.1% 481,000 600,000 898 0.9% 601,000 294 0.3% or more 99,800 100.0% Median Price Median Price Total $85,278 IN-MARKET $196,661

  22. Active Residential Projects

  23. 20,000 20,000 17,911 17,419 18,000 18,000 15,636 16,000 16,000 14,891 14,376 14,236 13,770 14,000 14,000 13,237 13,200 12,000 12,000 10,797 10,000 10,000 7,952 8,000 8,000 6,000 6,000 4,000 4,000 2,000 2,000 - - 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 Personal Bankruptcies FY 2004 and 2005

  24. Growth of Merchandise Exports in fiscal years 2003 thru 2005 18.0% 17.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.7% 2.0% -0.2% 0.0% 2003 2004 2005 -2.0% Manufacturing Manufacturing Employment Annual Growth for fiscal years 2003 thru 2005 0.0% -0.5% -1.0% -1.5% -2.0% -2.5% -3.0% -3.5% -4.0% -4.5% -5.0% 2003 2004 2005 Manufacturing continues to grow at a moderate pace. Employment in the sector is declining, but output, as indicated by merchandise exports, is growing at about 2.7% per year. This trend is expected to continue in the near term.

  25. 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 1 2 3 Inflation INFLATION Annual Change of Consumer Price Index 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% INFLATION Annual Change in Costs of Private Transportation 2.0% 0.0% 2003 2004 2005 Inflation has risen sharply in the past twelve months, owing to the rise in energy costs. The outlook is for inflation to abate rapidly once oil prices start to recede. Within three years, inflation should be roughly the same as in the United States, or about 3% annually.

  26. GDP Gross Domestic Product by major industrial sector 2004 42.9% 0.5% 2.2% 6.7% 9.3% 12.1% 9.9% 16.4% Agriculture Manufacturing Contract construction and mining Transportation and other public utilities Trade Finance, insurance and real estate Services Government

  27. 24.3% 20.3% 32.0% 6.5% 0.8% 6.3% 3.8% 3.5% 0.9% 1.6% Consumer Debt Consumer Debt 2004 Commercial Banks Installment Sale Companies Local Credit and Savings Unions PR Commonwealth Employees‘ Association Small Personal Loans Companies Pension Public Funds Revolving credit cards and deferred installments Federal Credit and Savings Unions Insurance Companies Student Loan Marketing Association Total consumer debt is approximately 42% of Personal Income

  28. Fiscal Situation in Puerto Rico • Structural deficit around $1.3 billion = 2.6% of GNP • Extraordinary growth in public expenditure • “Diminishing” income tax system • “Unhealthy” financing of the budget • Downgrading by credit classifying agencies • Governor’s projects • Short term > transition measures • Medium and Long Term > Fiscal Reform • Disconnection Executive / Legislature

  29. 12,000 10,098 9,804 9,742 10,000 9,041 8,528 8,057 7,966 8,000 7,364 7,077 6,519 5,912 6,000 4,000 2,000 - 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Changes in the Economic Context Total Transfers Federal Government

  30. Real GNP Growth –Fiscal Years 3.5% 3.0% 2.5% Risk 2.0% 1.5% Base 1.0% 0.5% 0.0% -0.5% 2002 2005 2006 2007 2008 2009 2010 2004 2003 Short Run Prospects

  31. 2005 2020 >75 70-74 65-69 80+ 60-64 75-79 70-74 55-59 65-69 50-54 60-64 45-49 55-59 40-44 50-54 35-39 45-49 30-34 40-44 25-29 35-39 20-24 30-34 15-19 25-29 10-14 20-24 5-9 15-19 0-4 10-14 200,000 150,000 100,000 50,000 0 50,000 100,000 150,000 200,000 5- 9 0- 4 150,000 100,000 50,000 0 50,000 100,000 150,000 200,000 The Demographic Dimension Age Composition of the Population 1990 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5- 9 0-4 200,000 150,000 100,000 50,000 0 50,000 100,000 150,000 200,000

  32. Internet Incidence in Puerto Rico Internet access in 2005 is 33% among persons 12+ (1,016,500) Access to Internet 32.9% No access to Internet 67.1%

  33. Internet Incidence by Educational Level 120% 100.0% 100% 85.7% 80% 60% 54.3% 52.6% 40% 35.9% 26.9% 20.0% 20% 9.5% 0% Eight or less High school level High school Associate College level Undergraduate Masters degree Doctoral degree degree graduate degree

  34. Internet Incidence by Family Income The media income of Internet users is $26,818 as compared to the general population ($16,543) 100% 92% 90% 78% 80% 70% 60% 55% 50% 44% 40% 30% 18% 20% 10% 0% Less than $15,000 $15,000 to $30,000 $30,000 to $49,000 $50,000 to $74,000 $75,000 or more

  35. Persons Shopping Via Internet Yes 43.3% No 56.7%

  36. 45.0% 41.9% 40.0% 35.0% 30.0% 25.0% 25.0% 20.0% 16.9% 15.0% 10.0% 7.3% 6.2% 5.0% 2.7% 0.0% Less than $100 $100-$499 $500-$999 $1,000 - $1,999 $2,000 - $2,999 $3,000+ Annual Internet Shopping Expenditure The median expenditure is $388

  37. Cruise ships and airplane tickets, hotel and auto reservations 35.0% Books 34.2% Electronic Products 31.2% Tickets (cinemas, events) 30.8% Music 25.8% Clothing and Accessories 25.0% Computers and Software 24.6% Movies and DVD 23.8% Decoration and Articles for the House 23.1% Office Articles 18.5% Gifts 15.4% Collection Articles 11.2% Vehicles 11.2% Vitamins and Health Products 10.4% Games 10.0% Toys and Kid Articles 9.6% Most Frequent Purchases in Internet

  38. Reasons for Puerto Rico’s high retail revenue • High level of consumerism. • Consumer debt is 42% of Persona Income • Credit Card Market > $4,000 million a year • 400,000 consumers have credit cards from Banco Popular, (34% SOM) • Lack of competition among retailers • Underground economy

  39. Local Consumers want more… and more… stores

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