Contents. Management report 3. Independent auditor s report on the financial statements 9. Balance sheets 11. Income Statements 13

Transcription

1 December 31, 2015 (A free translation of the original report in Portuguese as published in Brazil containing Financial Statement prepared in accordance with accounting practices adopted in Brazil and in accordance with International Financial Reporting Standards (IFRS)) KPDS

2 December 31, 2015 Contents Management report 3 Independent auditor s report on the financial statements 9 Balance sheets 11 Income Statements 13 Statements of comprehensive income 14 Statements of changes in shareholder s equity 15 Statements of cash flows - Indirect method 16 Statements of added value 18 Notes to the financial statements 20 2

3 December 31, 2015 MANAGEMENT COMMENTS Dear shareholders, In compliance with the legal and statutory provisions in force, the Management of BR Properties S.A. hereby submits its comments and results for the year ended December 31, Amounts are expressed in thousands of R$, unless otherwise indicated, and as provided in the Corporation Law and rules established by the Securities Commission. Management's comments form an integral part of the individual and consolidated financial statements and should be read together with the respective notes. BUSINESS DESCRIPTION BR Properties is one of the main companies investing in commercial properties for income in Brazil, with focus on purchase, leasing, management, development and sale of commercial real estate, including office buildings, industrial and logistics warehouse, and properties for retail business in Brazil s main metropolitan areas. BR Properties adopts a dynamic standing and monitors the Brazilian real estate market in order to foresee trends of supply and demand in the various regions where it operates in order to evaluate the best purchase and sale opportunities and maximize the profitability of its investments. The company closed the year with 40 commercial properties in its portfolio, comprising a gross leasable area (GLA) of 584 thousand m², representing a market value of approximately R$ 7,028,639. The Company has 1 project under development and 4 land plots, currently corresponding to 55 thousand m² of GLA. Out of the 40 properties held in portfolio by the Company at the end of 2015: 33 or 442 thousand m² are office buildings; 2 or 86 thousand m² are industrial or logistics warehouses; 1 or 2 thousand m² are projects under development; 4 or 53 thousand m² are land plots. MAIN OPERATING FACTS OCCURRED IN 2015 Despite the visible slowdown of economic activity in Brazil during the year of 2015, together with the increase in interest and unemployment rates, BR Properties has maintained solid operating results, with the portfolio vacancy rate at a lower level than the average vacancy of key corporate markets in the nation, vacating the portfolio below the average of the nation s foremost corporate markets, in addition to a near-zero default rate, demonstrating the resilience of its premium portfolio. 3

4 December 31, 2015 During the year, BR Properties marketed 14 thousand m² of gross leasable area, impacted by the weak performance of the Brazilian economy in this year of The portfolio of the company closed the year with financial and physical vacancy rates of 10.4% and 14.3%, respectively; and the default rate of the portfolio remained stable at 2.2%. In terms of results, the consolidated gross revenue amounted to R$ 774,761 in 2015, a 14% decrease in relation to the same period in the previous year. This reduction is explained mainly by the loss of rental revenue resulting from asset sales in the last 12 months. The gross revenues of company in 2015 were split into lease revenues and property management revenues in the following proportions: Lease revenues: amounted to R$ 755,777 thousand, a 15% decrease in relation to 2014, representing 97.5 % of the consolidated gross revenues; Property Management Revenues: amounted to R$ 18,984 thousand, a 26% increase in relation to 2014, representing 2.5% of consolidated gross revenue; Net revenues for the year amounted to R$ 714,880, which corresponds to a decrease of 15% in relation to the same period in the previous year. The adjusted EBITDA, less non-cash expenses such as reappraisal of property values, bonus reserve and option plan, amounted to R$ 614,281, a 18% decrease over 2014, with an adjusted EBITDA margin of 86%, the highest in the sector. The EBITDA calculated under the method established by CVM Instruction No. 527/12 amounted to -R$ 68,123 in 2015, reaching an EBITDA margin of -10%, as shown below: 2015 Net income for the year (769,772) Interest of non-controlling shareholders 134 Depreciation 552 Deferred taxes (202,541) Provisions for income and social contribution tax 64,130 Net financial income (loss 839,375 EBITDA (68,123) EBITDA margin -10% Other operating income/expenses 109,688 Gains/Losses on Fair Value of Investment Properties 551,487 Provision of bonuses 4,596 Reserve for Stock Options 4,048 Provision for Contingencies non-recurring 12,585 Adjusted EBITDA 614,281 Adjusted EBITDA margin 86% Adjusted FFO, a measuring concept used in the real estate sector to measure a Company s net cash generation, was R$ 91,442 in the period, with a 13% margin. 4

5 December 31, 2015 Due to non-cash effects such as currency devaluation on perpetual bonds denominated in dollars, and the reappraisal of property values throughout the year, BR Properties recorded a net loss of R$ 769,638 in the year. SALE OF ASSETS Brookfield The Company and/or subsidiaries, on August 10, 2015, entered into four Real Estate Purchase & Sale Commitments and one Share Purchase Agreement ("Contracts") with Brookfield, aimed at the disposal of real estate assets located in the cities of Rio de Janeiro and São Paulo and equity interest, in the amount of roughly R$ 2,079,000 (two billion, seventy-nine million reais), from which a debt of approximately R$ 800,000 (eight hundred million reais) should be deducted, which would be assumed by the purchaser, in addition to other adjustments provided for in the Contracts. As of December 01, 2015, BR Properties S.A. concluded the disposal of companies and investment funds that comprise the Brookfield economic group, of the following real estate assets held directly and indirectly, through investment vehicles in which has shareholdings: (i) ideal part of % of the undivided interest of the land which corresponds to the D Block of "Condomínio WTorre JK", located in the city of São Paulo, state of São Paulo and Block E of "Condomínio WTorre JK", located in the city of São Paulo, state of São Paulo; (ii) chambers nºs 101, 301, 401, 501 e 601 of "Edifício Sylvio Fraga", located in the city of Rio de Janeiro, State of Rio de Janeiro; (iii) chambers nº 101 a 2,601, of "Edifício Condomínio Mayrink Veiga", located in the city of Rio de Janeiro, state of Rio de Janeiro; and (iv) all of the shares of the company BRPR 47 Empreendimentos e Participações S.A., which owns the "Edifício Centro Empresarial Senado", located in the city of Rio de Janeiro, state of Rio de Janeiro. The total gross value of the aforementioned disposal was R$ 1,949,000 (one billion, nine hundred fortynine million reais). As of January 22, 2016, BR Properties S.A. completed - under the terms of the contract signed on August 10, 2015 ("Contract"), the disposal of office suites 41, 42, 51, 52, 61, 62, 91, 92, 101 and 102, of Edifício Cidade Jardim, located in the city of São Paulo, state of São Paulo, a real estate investment fund that is part of the Brookfield economic group, thereby concluding the transaction established in the Contract. The total gross value of the aforementioned disposal was R$ 130,000 (one hundred thirty million reais). Blackstone On August 03, 2015, the Company entered into a Private Instrument of Purchase and Sale of Shares and Quotas and Other Covenants ("Contract") with BRE Ponte Participações S.A., as well as a Private Instrument of Commitment to Sale/Purchase Real Estate Property and Other Covenants ("CCV"), aimed at the disposal of 10 real estate assets owned by it or its subsidiaries in the amount of R$ 1,065,326 (one billion, sixty-five million, three hundred twenty-six thousand). 5

6 December 31, 2015 As of November 25, 2015, the Company completed the sale to BRE Ponte Participações S.A., five real estate assets owned by it or its subsidiaries, including two industrial warehouses called "BBP Fernando Pessoa", located in the City of Atibaia, state of São Paulo, and "Gaia Ar-Galpão Tucano", located in the city of Jarinu, state of São Paulo; One retail property called "Varejo Marginal Tietê", located in the city of São Paulo, state of São Paulo; One commercial office called "WTNU III", located in the city of São Paulo, state of São Paulo; and one industrial building called Galpão Vinhedo, located in the city of Vinhedo, state of São Paulo. The total gross value of that disposal was R$ 694,326 (six hundred ninety-four million, three hundred twenty-six thousand, five hundred reais). Additionally, on December 10, 2015, BR Properties S.A. completed the sale to BRE Ponte Participações S.A., of the commercial building called Condomínio São José dos Campos, located in the city of São José dos Campos, state of São Paulo, through the sale of all the shares held by the Company in BRPR XIV Empreendimentos e Participações Ltda. The total gross value of this disposal was R$ 155,356 (one hundred fifty-five million, three hundred fifty-six thousand reais). On January 6, 2016, the Company concluded - under the terms of the agreement entered into on August 3, the sale to BRE Ponte Participações S.A., a warehouse called Galpão Palmares, located in the city of Ipojuca, state of Pernambuco, and a property called Varejo Barra da Tijuca, located in the city and state of Rio de Janeiro, through the disposal of all the shares held by the Company in BRPR 64 Empreendimentos e Participações Ltda. The total gross value of that sale was R$ 121,966 (one hundred twenty-one million, nine hundred sixtysix thousand reais). Completion of the sale of the last Property included in the Contract, through the sale of equity interest in the Company's subsidiary, at the estimated gross amount of R$ 93,677 (ninety-three million, six hundred seventy-seven thousand reais) is subject to the implementation of certain conditions and will be carried out on a timely basis, as soon as these conditions are verified by the parties. LETTER OF INTENT FOR VOLUNTARY TENDER OFFER OF CONTROL OF THE COMPANY BTG Pactual On February 26, 2015, BR Properties received a letter of intent to conduct a voluntary tender offer to acquire control of the Company, to be held by the Bridge Equity Fund, the investment vehicle used, directly or indirectly, by (i) Real Estate Investment Fund - FII Prime Portfolio, (ii) BTG Investments, LP and (iii) Brookfield BR7, LLC. In early July, in a statement to the market, BTG Pactual informed that it has no intention of maintaining the voluntary tender offer, since the 120-day time frame had elapsed and that certain precedent conditions were not verified. GP Investiments As of December 11, 2015, the Company received a letter of intent to conduct a voluntary tender offer to acquire control of the Company, to be held by GP Real Properties II C, LLC, a subsidiary of GP Investments, Ltd. ("GP Real Properties"). 6

7 December 31, 2015 On the same date, an extraordinary meeting of the Board of Directors was held, which unanimously approved the sending of a reply to GP Real Properties II C, LLC, a subsidiary of GP Investments, Ltd. ("GP Real Properties") requesting clarifications and adjustments to the contents of the letter received by the Company as to its manifestation of intent to formulate a takeover bid to acquire control of the Company ("OPA GP") ("Letter"). On December 18, GP Real Properties II C, LLC, a subsidiary of GP Investments, Ltd., sent the reply to the Company s letter. Company Management informs that it will keep its shareholders and the market informed about subsequent events related to the unfolding of this takeover bid, in order to assure equal and simultaneous dissemination of information to all investors. BUILDINGS UNDER CONSTRUCTION Souza Aranha II Souza Aranha II is located in the Chácara Santo Antonio region, in a consolidated business area in the city of São Paulo, near Marginal Pinheiros. The project is currently in the internal and external finishing phase and it is expected to be delivered by the second quarter of HUMAN RESOURCES The staff at the end of 2015 totaled 81 employees, being 39 employees at the Company s address in the city of São Paulo-SP, and 42 employees at the properties managed by the Company. SHAREHOLDERS' RIGHTS AND MARKET DATA At the end of the 2015, BR Properties' equity value per share, which is calculated by dividing the Company's Shareholders' Equity by the total number of shares issued at the time, totaled R$ per share. The Company's shares are traded in the environment of the New Market (Novo Mercado) on the São Paulo Stock Exchange (Bovespa), and closed the trading session of December 31, 2015 quoted at R$ 8.42/share. OUTLOOK AND PLANS FOR THE CURRENT AND FUTURE YEAR/CONCLUSION We intend to maintain the same strategy that transformed us into one the largest companies in the sector, focusing on the best and most requested regions of the country and on top quality property in the two classes of assets were we have exposure: offices, industrial and logistic warehouses and large retail stores. We pursue the strategy of market consolidation, focusing on acquisition of large properties, adding value through the use of modern management techniques, consistent strategies, rationalization of operating costs, retrofitting, and quality improvements. 7

8 December 31, 2015 RELATION WITH INDEPENDENT AUDITORS Under the terms of Instruction CVM no. 381, of January 14, 2003, the Company informs that its policy of contracting services not related to external auditing is substantiated in the principles that preserve the auditor's independence. Such principles are based on the fact that the independent auditor should not audit their own work, cannot perform managerial duties, should not advocate for their client or provide any other services that are considered prohibited by the prevailing rules, thus maintaining independence in the work executed. During the year of 2015, KPMG Auditores Independentes did not provide any service other than reviewing the quarterly and annual financial information. STATEEMENT OF THE EXECUTIVE BOARD Under the terms of Normative Instruction CVM 480/09, the Company's Senior Management declares that it has reviewed, discussed and agreed with the opinion expressed in the independent auditors on quarterly information relating to December 31,

9 KPMG Auditores Independentes Rua Arquiteto Olavo Redig de Campos, 105, 6º andar - Torre A São Paulo/SP - Brasil Caixa Postal São Paulo/SP - Brasil Telefone 55 (11) Fax 55 (11) Internet Independent auditors' report on the financial statements To the Shareholders and Management of BR Properties S.A. São Paulo - SP Introduction We have audited the accompanying individual and consolidated financial statements of BR Properties S.A. ( Company ), which comprise the balances sheets as at December 31, 2015, statements of income, comprehensive income, changes in shareholders equity and cash flows for the year then ended, comprising a summary of significant accounting policies and other explanatory information. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with the accounting practices adopted in Brazil and in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board - IASB, as well as for the internal controls that it deemed necessary to enable the preparation of these financial statements that are free from material misstatement, whether due to fraud or error. Auditors responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with the Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 9 KPMG Auditores Independentes, uma sociedade simples brasileira e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative ( KPMG International ), uma entidade suíça. KPMG Auditores Independentes, a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

10 Opinion on financial statements In our opinion, the individual and consolidated financial statements aforementioned present fairly, in all material respects, the financial position of BR Properties S.A. as at December 31, 2015, and its individual and consolidated financial performance and cash flows for the year then ended in accordance International Financial Reporting Standards - IFRS issued by the International Accounting Standards Board (IASB) and the accounting practices adopted in Brazil. Other matters Statements of added value We have also audited the individual and consolidated statements of value added (DVA) for the year ended December 31, 2015, prepared under responsibility of Company's management, which presentation is required by Brazilian Corporate Law for publicly-held companies and as supplementary information under IFRS that do not require the presentation of a statement of value added. These statements were submitted to the same audit procedures previously described and, in our opinion, these supplementary statements are adequately presented, in all material respects, in relation to the basic financial statements taken as a whole. São Paulo, January 29, 2016 KPMG Auditores Independentes CRC 2SP014428/O-6 Original report in Portuguese signed by Ederson Rodrigues de Carvalho Accountant CRC 1SP199028/O-1 10

11 BR Properties S.A Balance sheets at December 31, 2015 and 2014 (In thousands of Reais) Individual Consolidated 12/31/ /31/ /31/ /31/2014 Assets Current assets Cash and cash equivalents (Note 4) 656, ,368 1,230, ,322 Derivatives/Financial instruments (Note 22) 1,670 15,890 1,670 15,890 Accounts receivable (Note 5) 33,683 19, , ,566 Taxes recoverable (Note 6) 65,921 44, , ,011 Accounts receivable from related parties (Note 21) Prepaid expenses 4,180 4,578 9,672 13,675 Interest on equity receivable (Note 21) 10,441 11, Other current assets (Note 7) 60,808 21,871 71,193 30,069 Total current assets 833, ,062 1,539, ,533 Non-current assets Other non-current assets 13,401-17,287 4,648 Deferred income and social contribution taxes (Note 12) 12,713-12,713 - Investments (Note 8) 3,863,235 5,356, Property, plant and equipment 8,334 8,332 8,786 8,765 Investment properties (Note 9) 2,257,127 2,389,115 7,028,639 10,473,317 Intangibles (nota 10) 554, , , ,842 Total non-current assets 6,709,652 8,308,704 7,622,267 11,041,572 Total Assets 7,543,254 8,873,766 9,162,163 11,982,105 11

12 BR Properties AS Balance sheets at December 31, 2015 and 2014 (In thousands of Reais) Individual Consolidated 12/31/ /31/ /31/ /31/2014 Liabilities Current liabilities Loans and financing (Note 11) 586, , , ,856 Accounts payable 1,056 6,572 3,817 16,613 Payables for acquisition of real estate 1,539 7,926 8,773 14,775 Tax liabilities (Note 13) 13, ,453 8,620 Provision for income and social contribution taxes (Note12) 97 43,177 5,913 46,199 Provision for bonuses to employees and managers 11 14, ,000 Salaries and social security charges 6,182 1,456 7,499 2,362 Accounts payable for related parties (Note 21) Payable dividends 2,723 66,102 3,380 66,729 Other current liabilities (Note 14) 6,374 7,579 41,863 73,378 Total current liabilities 618, , , ,532 Non-current liabilities Loans and financing (Note 11) 2,262,909 2,425,933 2,936,486 3,906,340 Deferred income and social contribution taxes (Note 12) - 137, ,371 1,394,498 Contingencies (Note 15) 22,861 19,230 23,102 18,795 Other noncurrent liabilities ,794 Total noncurrent liabilities 2,284,770 2,582,376 5,688,322 5,401,427 Shareholders' equity (Note 16) Capital 2,361,522 2,361,522 2,361,522 2,361,522 Share issue expenses (47,288) (47,288) (47,288) (47,288) Capital reserves 2,722,848 2,718,800 2,722,848 2,718,800 Profit reserves - 972, ,082 Retained earnings/losses (396,966) - (396,966) - Total shareholders' equity before non-controlling interest 4,640,086 6,005,116 4,640,086 6,005,116 Interest of non-controlling shareholder ,866 63,030 Total shareholders' equity 4,640,086 6,005,116 4,702,953 6,068,146 Total liabilities 7,543,254 8,873,766 9,162,163 11,982,105 12

13 BR Properties SA Income Statements Years ended December 31, 2015 and 2014 (In thousands of Reais) Individual Consolidated 12/31/ /31/ /31/ /31/2014 Net operating income (Note 17) 142, , , ,788 Gross Income 142, , , ,788 Operating income (expenses) General and administrative expenses (Note 18) (56,831) (44,697) (100,305) (83,371) Management compensation (18,162) (14,240) ( 18,162) (14,240) Stock option plan (4,048) (924) (4,048) (924) Equity in net income (Note 8) ( 192,863) 256, Other net operating income (expenses) (Note 19) (94,271) (178,619) (109,686) 1 72,738 Profit or loss with fair value of investment properties (Note 9) (34,454) 53,045 (551,487) (54,137) Income (loss) before financial income and expenses ( 257,690) 573,238 (68,808) 856,854 Financial income (Note 20) 76, ,753 99, ,877 Financial expenses (Note 20) ( 737,263) (507,498) (938,628) (752,254) Income (loss) before income and social contribution taxes (918,293) 212,493 (908,183) 278,477 Income and social contribution taxes (Note 12) 148,655 51, ,411 (11,136) Net income (loss) for the year (769,638) 264,408 (769,772) 267,341 Income attributed to shareholders: Interest of controlling shareholdeers (769,638) 264,408 (769,638) 264,408 Interest of non-controlling shareholders - - (134) 2,933 Basic net income (loss) per thousand shares - R$ (2.58) 0.89 (2.58) 0.89 Diluted net income (loss) per thousand shares - R$ (2.58) 0.90 (2.58)

14 BR Properties S.A. Statements of comprehensive income Years ended December 31, 2015 and 2014 (In thousands of Reais) Individual Consolidated 12/31/ /31/ /31/ /31/2014 Net income (loss) for the year (769,638) 264,408 (769,772) 267,341 Other comprehensive income Registers and effects related to comprehensive income Total comprehensive income for the year (769,638) 264,408 (769,772) 267,341 Comprehensive income attributable to: Interest of controlling shareholdeers (769,638) 264,408 (769,638) 264,408 Interest of non-controlling shareholders - - (134) (2,933) 14

15 BR Properties S.A. Statements of changes in shareholders' equity Years ended December 31, 2015 and 2014 (In thousands of Reais) Capital reserve Profit Reserve Subscribed and paid-in capital Expenditure with issuance of shares Recognized options granted Incorporation Reserve Treasury Shares Legal reserve Unrealized profit reserve Profit retention Retained earnings/losses Total Interest of non-controlling shareholder Equity Total Balances at December 31, ,356,703 (47,288) 14,098 2,982,640 (225,950) 123, ,669 2,008,500-7,650,441 60,724 7,711,165 Capital increase in conformity with Annual Shareholders' meeting of 03/07/2014 4, ,819-4,819 Shares buyback (52,911) (52,911) - (52,911) Cancellation of treasury shares (278,861) 278, Share purchase option plan acceptance Payment of Proposed additional dividends (438,669) (1,357,793) - (1,796,462) - (1,796,462) Net income for the year , ,408 2, ,341 Financial resources were used for Minimum mandatory dividends (66,102) (66,102) (627) (66,729) Profit Retention ,306 (198,306) Balances at December 31, ,361,522 (47,288) 15,021 2,703, , ,013-6,005,116 63,030 6,068,146 Stock option Recognition - - 4, ,048-4,048 Payment of Proposed additional dividends (599,440) - (599,440) - (599,440) Other movements (30) (30) Net income (loss) for the year (769,638) (769,638) (134) (769,772) income statement were used for: Accrued loss compensation (123,069) - (249,573) 372, Balances at December 31, ,361,522 (47,288) 19,069 2,703, (396,996) 4,640,086 62,866 4,702,952 15

16 BR Properties SA Statements of cash flows Years ended December 31, 2015 and 2014 (In thousands of Reais) Individual Consolidated 12/31/ /31/ /31/ /31/2014 Net cash used in operating activities 27,836 (15,935) 344, ,863 CashFlow of Operational Activities 110, , , ,168 Net income (loss) before income and social contribution taxes (918,293) 212,493 (908,183) 278,477 Adjustments to reconcile net income for the period with the net cash used in operating activities Depreciation Amortization of capitalized costs 6,936 6,856 12,812 17,351 Fair value of property investments 34,454 (53,045) 551,487 54,137 Linearization of rental income (12,503) (7,912) (10,888) (9,523) Equity income 192,863 (256,342) - - Interest and monetary variations on loans 348, , , ,603 MTM perpetual bonus interests (5,418) (5,415) (5,418) (5,415) Net exchange variation 362,112 91, ,112 91,080 Gains/(Losses) with derivative financial instruments (30,804) (13,980) (30,804) (13,980) MTM Swap 16,484 15,045 16,484 15,045 Non-controlling interest (2,933) Stock option plan 4, , Provision for bonuses to employees and managers 10,630 16,047 11,445 16,157 Allowance for doubtfull accounts 12 2,412 1, Monetary Resteatment 3,902 2,393 4,811 2,177 Revenue obtained on investment sale 97,646 (170,289) 71,865 (184,884) Changes in assets and liabilities (82,855) (171,781) (283,455) (265,305) Trade accounts receivable (1,594) 3,892 (131,258) (19,189) Recoverable taxes (55,278) 121,810 (113,532) (201,665) Advances for acquisition of property Related parties - (1) - - Other assets (7,140) 2,969 9,405 18,077 Accounts payable (4,827) (26,761) (9,242) 24,473 Payables for acquisition of real estate (453) 6,346 (453) 6,363 Taxes and Contributions 18,052 (8,318) 19,503 (17,804) Installment payment of taxes - - (2,085) (4,096) Salaries and social security charges 56 (3,381) 1 53 (3,377) Provision for bonuses to employees and managers (25,091) (15,648) ( 26,363) (16,306) Other liabilities (6,579) (9,382) ( 29,580) (3,148) Net cash generated (consumed) in investment activities 1,266,879 2,842,159 1,602,734 2,562,330 Investments in subsidiaries (60,455) (149,478) - - Write down of investments from subsidiares 1,040,502 1,832, Dividends received from subsidiaries 154, , Amortization of investment fund quotas 67, Acquisition of property, plant and equipment Receipt for sale of investment property (327) (106) (576) (280) Write down of property, plant and equipment Acquisition of investment property (34,386) (152,397) (54,991) (195,102) Net cash acquired from merged investee - 57, Receiving financial instruments gains 28,540 14,067 28,540 14,067 Receiving for Investment Properties sale 71, , , ,445 16

17 BR Properties SA Statements of cash flows Years ended December 31, 2015 and 2014 (In thousands of Reais) Individual Consolidated 12/31/ /31/ /31/ /31/2014 Receipt for the sale of interest in subsidiaries - - 1,040,502 1,832,200 Net cash generated (consumed) in financing activities (1,085,184) (2,944,190) (1,311,973) (3,463,735) Equity capital increase - 4,819-4,819 Dividends paid (662,818) (1,796,464) (662,818) (1,796,464) Borrowings and financing 2, ,282 32, ,537 Payment of loans and financing (424,885) (1,625,917) (681,673) (2,146,717) Gain and loss on sale of shares - (52,910) - (52,910) Net increase (decrease) in cash and cash equivalents (209,530) (117,966) 634,983 (335,542) Balance of cash and cash equivalents at the beginning of the year 447, , , ,864 Balance of cash and cash equivalents at the end of the year 656, ,368 1,230, ,322 Net increase (decrease) in cash and cash equivalents (209,530) (117,966) 634,983 (355,542) 17

18 BR Properties SA Statement of added value Years ended December 31, 2015 and 2014 (In thousands of Reais) Individual Consolidated 12/31/ /31/ /31/ /31/2014 Income 121, , ,720 1,020,204 Revenues from rentals and services 156, , , ,236 Other income (34,466) 229,252 (553,041) 117,968 Other income - 178, ,738 Reversal (Formation) of allowance for doubtful accounts (12) (2,412) (1,554) (633) Adjustments at fair value of investment property (34,454) 53,045 (551,487) (54,137) Inputs acquired from third parties (120,694) (22,747) (171,685) (56,602) Other (120,694) (22,747) (171,685) (56,602) Inputs acquired from third parties (26,423) (22,747) (61,999) (58,602) Other (94,271) - (109,686) - Gross added value 1, ,999 50, ,602 Retentions (325) (320) (552) (320) Retentions (Depreciation and Amotization) (325) (320) (552) (320) Net added value produced ,679 49, ,282 Added value received as transfer (116,203) 403,095 99, ,877 Equity income (loss) (192,863) 256, Financial income 76, ,753 99, ,877 Added value for distribution (115,354) 768, ,736 1,137,159 Distribution of added value (115,354) 768, ,736 1,137,159 Personnel 28,296 30,330 35,385 35,842 Direct remuneration 26,362 28,848 32,106 33,352 Benefits ,591 1,498 Contribution to the Severance Indemnity Fund - FGTS, 1, , Taxes, rates and contributions (111,275) (33,462) (55,504) 81,722 Federal (124,860) (35,056) (70,988) 78,823 Municipal 13,585 1,594 15,484 2,899 Remuneration of third party capital 737, , , ,254 Interest 348, , , ,603 Other 388, , , ,651 Interest on own capital (769,638) 264,408 (269,772) 267,341 Retained earnings (769,638) 264,408 (769,638) 264,408 18

19 BR Properties SA Statement of added value Years ended December 31, 2015 and 2014 (In thousands of Reais) Individual Consolidated 12/31/ /31/ /31/ /31/2014 Non-controlling interest - - (134) 2,933 19

20 Notes to the financial statements (In thousands of Reais) 1 Operations Organized as a Corporation domiciled in Brazil, the Company s shares are traded on BM&FBOVESPA under the code BRPR3. The head office is located at Avenida das Nações Unidas, 12, th floor - São Paulo, SP. The individual and consolidated financial statements of BR Properties S.A. ( Company ) for the year ended December 31, 2015 was concluded and approved by the Company s Executive Board on January 29, 2016 and the disclosure was authorized according to the decision of Board of Directors members on February 16, The individual and consolidated financial statements of the Company for year ended December 31,2015 comprise the Company and its subsidiaries (jointly referred to as the Group, and individually as Group entities ) BR Properties S.A., its subsidiaries and joint ventures (hereinafter referred to as Company ) are primarily engaged in the acquisition, management, leasing and sale of commercial properties in Brazil, mainly office buildings, retail stores and warehouses, as long as these are existing or built to suit assets. The Company also develops and contracts from third parties the construction of new properties, which will be incorporated into its portfolio for leasing purposes. Agreement for the sale of assets and shares to Brookfield On August 11, 2015, the Company and/or subsidiaries, entered into four (4) Property Purchase and Sale Agreements and one (1) Share Purchase and Sale Agreement ( Agreements ) with Brookfield in order to dispose of real estate assets located in the cities of Rio de Janeiro and São Paulo and of shareholding interest for approximately R$2,079,000 (two billion seventy-nine million Brazilian reais). Debts of approximately R$800,000 (eight hundred million Brazilian reais) will be deducted from that amount and will be assumed by the buyer, and other adjustments established on the agreements will be made. On December 01, 2015, BR Properties S.A. concluded the disposal to the companies and investment funds that comprise the Brookfield economic group, of the following real estate assets held directly and indirectly, through investment vehicles in which it has shareholdings: (i) ideal part of % of the undivided interest of the land that corresponds to D Block of "Condomínio WTorre JK", located in the city of São Paulo, state of São Paulo, and E Block of "Condomínio WTorre JK", located in the city of São Paulo, state of São Paulo; (ii) chambers nºs 101, 301, 401, 501 e 601 do "Edifício Sylvio Fraga", located in the city of Rio de Janeiro, State of Rio de Janeiro; (iii) chambers nº 101 a 2,601, of "Edifício Condomínio Mayrink Veiga", located in the city of Rio de Janeiro, state of Rio de Janeiro; and (iv) all of the shares of the company BRPR 47 Empreendimentos e Participações S.A., which owns the "Edifício Centro Empresarial Senado", located in the city of Rio de Janeiro, state of Rio de Janeiro. The total gross value of the aforementioned disposal was R$ 1,949,000 (one billion, nine hundred fortynine million reais). 20

21 Agreement for the sale of shares, membership units and real estate assets to Blackstone On August 3, 2015, the Company entered into an agreement with BRE Ponte Participações S.A. for the purchase and sale of shares and membership units and other covenants ( Agreement ), and entered into a Property Purchase and Sale Agreement and Other Covenants ( CCV ) to dispose of 10 real estate assets owned by the Company or its subsidiaries. The agreements total R$1,065,326 (one billion sixty-five million three hundred thousand and twenty-six Brazilian reais), which is subject to certain adjustments established on the Agreement and on CCV. As of November 25, 2015, the Company completed the sale to BRE Ponte Participações S.A., five real estate assets owned by it or its subsidiaries, including two industrial warehouses called "BBP Fernando Pessoa", located in the City of Atibaia, state of São Paulo, and "Gaia Ar-Galpão Tucano", located in the city of Jarinu, state of São Paulo; One retail property called "Varejo Marginal Tietê", located in the city of São Paulo, state of São Paulo; One commercial office called "WTNU III", located in the city of São Paulo, state of São Paulo; and one industrial building called Galpão Vinhedo, located in the city of Vinhedo, state of São Paulo. The total gross value of that disposal was R$ 694,326 (six hundred ninety-four million, three hundred twenty-six thousand reais). Additionally, on December 10, 2015, BR Properties S.A. completed the sale to BRE Ponte Participações S.A., of the commercial building called Condomínio São José dos Campos, located in the city of São José dos Campos, state of São Paulo, through the disposal of all the shares held by the Company in BRPR XIV Empreendimentos e Participações Ltda. The total gross value of this sale was R$ 155,356 (one hundred fifty-five million, three hundred fifty-six thousand). Voluntary takeover bid to acquire control of the Company BTG Pactual On February 26, 2015, BR Properties received correspondence regarding the intention of a voluntary takeover bid to acquire control of the Company, to be held by the Bridge Equity Investment Fund, the investment vehicle used directly or indirectly by (i) Real Estate Investment Fund - FII Prime Portfolio, (ii) BTG Investments, LP and (iii) Brookfield BR7, LLC. At the beginning of July, in a communication to the market, BTG Pactual stated that it did not intend to continue with the voluntary public offering, given that the period of 120 days had passed and that certain prior conditions had not been met. GP Investiments As of December 11, 2015, the Company received a letter of intent to conduct a voluntary tender offer to acquire control of the Company, to be held by GP Real Properties II C, LLC, a subsidiary of GP Investments, Ltd. ("GP Real Properties"). On the same date, an extraordinary meeting of the Company s Board of Directors was held, which unanimously approved the sending of a reply to GP Real Properties II C, LLC, a subsidiary of GP Investments, Ltd. ("GP Real Properties") requesting clarifications and adjustments to the contents of the letter received by the Company as to its manifestation of intent to formulate a takeover bid to acquire control of the Company ("OPA GP") ("Letter"). On 21

22 December 18, GP Real Properties II C, LLC, a subsidiary of GP Investments, Ltd., sent the reply to the Company s letter. All correspondences are available at the CVM (Brazilian securities exchange commission) and the Company's website. Company Management informs that it will keep its shareholders and the market informed about subsequent events related to the unfolding of this takeover bid, in order to assure equal and simultaneous dissemination of information to all investors. Purchase and Sale Agreement of Edifício Haja Hills On December 4, 2014, the Company, through its subsidiary BRPRV Empreendimentos e Participações Ltda. entered into a Private Instrument for Purchase and Sale Commitment of Properties, aimed at the disposal of real estate units comprising Edifício Haja Hills, located at Avenida Raja Gabaglia, n.º 1781, in the City of Belo Horizonte, State of Minas Gerais, for R$36,000 (thirty-six million). The transaction was finalized during the first semester of this year. 2 Preparation basis of the financial statements 2.1 Statement of conformity regarding the IFRS and CPC These financial statements include: The consolidated financial statements are prepared according to the International Financial Reporting Standards - IFRS issued by the International Accounting Standards Board (IASB) and also in accordance with accounting practices adopted in Brazil ( BR GAAP ); The individual financial statements of the parent company prepared according to the BR GAAP. However, there is no difference between the shareholders' equity and consolidated result presented by the Group and the shareholders' equity and result of the individual in the individual financial statements. Accordingly, the consolidated financial statements of the Group and the individual financial statements are being presented side by side in a single set of financial statements. The Company adopted all the standards, revisions of standards, and interpretations issued by Accounting Pronouncement Committee (CPC), IASB and other regulatory bodies that were in force and applicable to the financial statements on December 31, All financial information presented in Brazilian Reais has been rounded to the nearest value, except otherwise indicated. 2.2 Consolidation basis Consolidated financial statements include operations of the Company and the following/subsidiaries, whose equity interest direct and indirect as of the balance sheet date is as follows: 22

23 Direct subsidiaries 12/31/ /31/2014 % Interest % Interest BRPR II Empreendimentos e Participações Ltda BRPR III Empreendimentos e Participações Ltda BRPR V Empreendimentos e Participações Ltda BRPR VII Empreendimentos e Participações Ltda BRPR VIII Empreendimentos e Participações Ltda BRPR X Empreendimentos e Participações Ltda BRPR XIV Empreendimentos e Participações Ltda. (**) BRPR XVII Empreendimentos e Participações Ltda BRPR XXII Empreendimentos e Participações Ltda BRPR XXIV Empreendimentos e Participações Ltda BRPR XXV Empreendimentos e Participações Ltda BRPR XXVII Empreendimentos e Participações Ltda BRPR 39 Empreendimentos e Participações Ltda BRPR 40 Empreendimentos e Participações Ltda BRPR 42 Empreendimentos e Participações Ltda. (**) BRPR 43 Empreendimentos e Participações Ltda BRPR 45 Empreendimentos e Participações S.A BRPR 46 Empreendimentos e Participações S.A BRPR 47 Empreendimentos e Participações Ltda. (**) BRPR 51 Empreendimentos e Participações S.A BRPR 52 Empreendimentos e Participações S.A. (**) BRPR 53 Empreendimentos e Participações S.A BRPR 54 Empreendimentos e Participações Ltda. (**) BRPR 55 Empreendimentos e Participações S.A BRPR 56 Empreendimentos e Participações S.A BRPR 57 Empreendimentos e Participações S.A SPE 61 Empreendimentos e Participações S.A BRPR 62 Empreendimentos e Participações Ltda BRPR 63 Empreendimentos e Participações Ltda. (**) BRPR 64 Empreendimentos e Participações Ltda BRPR 66 Empreendimentos e Participações Ltda. (*) BRPR A Adm. de Ativos Imob. Ltda BRPR Participações S.A Real estate investment funds Fundo de investimento Ventura II Desenvolvimento 2 FII - JK D/E (BRPR 68 FII) (*) Recorded on September 25, 2015 (**) SPEs sold during the financial year The subsidiaries were fully consolidated since the acquisition date, defined as the date when the Company obtains control over it, and continue being consolidated until that control is no longer in effect. The financial information of subsidiaries are prepared for the same reporting period that the parent company, using consistent accounting policies. All intragroup balances, income and expenses, and unrealized gains and losses arising from intercompany transactions are entirely eliminated. 23

24 The results of subsidiaries (including Real Estate Investment Funds) during the period ended December 31, 2015 and 2014 are included in the consolidated quarterly financial information since the date of their acquisition. Certain interests are included in the consolidated financial information by means of indirect control as follows: 12/31/ /31/2014 Direct subsidiary Companies of indirect control Indirect subsidiary % Interest % Interest BRPR III Empreendimentos e Participações Ltda. Fundo de investimento Ventura II BRPR XXV Empreendimentos e Participações Ltda. Fundo de investimento Ventura II BRPR XXVII Empreendimentos e Participações Ltda. Fundo de investimento Ventura II Revenue recognition Revenue recognition Revenue is recognized to the extent it is likely that economic benefits will be generated for the Company and when it can be measured reliably. The revenue is measured based on the fair value of the consideration received, excluding discounts, rebates, taxes or charges. The Company assesses revenue transactions according to the specific criteria to determine whether it is acting as agent or principal and, at the end, concluded that it is acting as principal in all its revenue contracts. Also, the following specific criteria shall be addressed before the revenue recognition: Leases Rental revenue resulting from operating leases of investment properties is recognized on a straight-line basis over the terms of the lease agreements. The difference between the duration of the lease agreements and payment periods are treated under the heading of Straight-line of rental income, aimed at recognizing revenue linearly. Revenue from sale of real estate Revenue from the sale of property is recognized in the statement of income when the significant risks and rewards of ownership have been transferred to the buyer. Interest income For all financial instruments evaluated at amortized cost and financial assets that earn interest and Interest-earning financial assets, financial income or expense is accounted for at the effective interest rate that discounts exactly future estimated cash payments or receipts over estimated life of the financial instrument or over a shorter period, when applicable, from the financial asset or liability net book value. The Interest income is included in financial income in the statement of income. The profit and loss for the period is calculated on the accrual basis. Additionally, the Company's policy is to record the vacancy expenses of the properties in general and administrative expenses. 24

25 2.4 Transactions denominated in foreign currency Transactions in foreign currency are initially recorded at the exchange rate of the functional currency in force on the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency based on the foreign exchange rate in force at the balance sheet date. All translation differences from foreign currency into the functional currency are recorded in Income Statements. 2.5 Cash and cash equivalents Cash equivalents are maintained for the purpose of meeting short-term cash commitments rather than for investment or other purposes. The Company considers as cash equivalents highly liquid short-term investment in a known amount that is subject to an insignificant risk of changes in its value. Consequently, an investment normally qualifies as cash equivalent when it has short-term maturity; for example, three months or less, as of the contracting date. Investments included as cash equivalents are classified as financial assets at fair value through profit or loss. 2.6 Trade accounts receivable These are presented at realizable value, and the allowance for doubtful accounts, when applicable, is calculated based on the losses regarded as probable on the realization of trade receivables. The expenses for the establishment of the allowance for doubtful accounts are recorded under Operating expenses in the statement of income. 2.7 Investments in subsidiaries The Company's investments in subsidiaries are recorded based on the equity method of accounting, according to CPC 18 (R2) - IAS 28, for the purposes of the Company s quarterly financial statements. Based on the equity method of accounting, investment in subsidiary is recorded on the Company s balance sheet at cost, plus the changes following the acquisition of equity interest in the subsidiary. In the Company, the goodwill related to the subsidiary is included in the book value of the investment which is not amortized. As the goodwill based on future profitability integrates the book value of the investment in the subsidiary (it is not recognized separately), it is not tested separately in relation to its recoverable amount. 25

26 Goodwill is based on expected future earnings and is part of the book value of the investment in the subsidiary (not recognized separately). The recoverable amount of goodwill is assessed annually. The equity interest in the subsidiary is stated in the parent company s income statement as equity pick-up, representing the net profit attributable to shareholders of the subsidiary. Subsidiary financial statements are prepared for the same reporting period as the Company. Where necessary, adjustments are made so that the accounting policies are consistent with those adopted by the Company. After applying the equity accounting method, the Company determines whether it is necessary to recognize additional impairment on the Company's investment in its subsidiary. The Company determines, at each balance sheet closing date, if there is objective evidence that investment in the subsidiary suffered impairment loss. If so, the Company calculates the amount of impairment loss as the difference between the recoverable amount of the subsidiary and the book value and recognizes the amount in the Income statement. When there is loss of significant influence on the subsidiary, the Company evaluates and recognizes investment at fair value. Any difference between the book value of the associated company at the time of the loss of significant influence and the fair value of the remaining investment and proceeds from the sale will be recognized in income. 2.8 Business combinations Business combinations are accounted for under the acquisition method. The cost of an acquisition is measured for the consideration amount transferred, valuated on fair value basis on the acquisition date, including the value of any ownership interest held by non-controlling shareholders in the acquired company, regardless of their proportion. For each business combination, the buyer must measure the non-controlling interest in the acquired business at the fair value of based on its interest in the net assets identified in the acquired business. Costs directly attributable to the acquisition should be accounted for as expense when incurred. On acquiring a business, the Company assesses the financial assets and liabilities assumed in order to rate and to allocate them in accordance with contractual terms, economic circumstances and pertinent conditions on the acquisition date, which includes segregation by the acquired entity of built-in derivatives existing in the acquired entity s host contracts. If a business combination is performed in stages, the fair value on the date of acquisition of the shareholding interest previously held in the capital of the acquiree is revaluated at fair value on the date of acquisition, impacts being recognized in the Income statement. Any contingent payments to be transferred by the acquiree will be recognized at fair value on the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability should be recognized in accordance with CPC 38 - IAS 39 in the statement of income or in other comprehensive income. If the contingent consideration is classified as equity, it should not be restated until it is finally settled within equity. 26