Aliansce Shopping Centers S.A. Parent company and consolidated financial statements at December 31, 2016 and independent auditor's report

Transcription

1 (A free translation of the original in Portuguese) Aliansce Shopping Centers S.A. Parent company and consolidated financial statements and independent auditor's report

2 Aliansce Shopping Centers Management Report 4Q16

3 Management Report Rio de Janeiro, March 27, 2017 Aliansce Shopping Centers S.A. (Bovespa: ALSC3), one of Brazil s largest shopping mall owners, announces today its results for the fourth quarter of 2016 (4Q16) and the twelve months of The Company s managerial financial information is presented on a consolidated basis and in thousands of reais (R$), in accordance with accepted practices in Brazil, comprising CPCs issued and approved by the Brazilian Securities and Exchange Commission (CVM), as well as international financial reporting standards (IFRS), except in regard to the effects of the adoption of pronouncements CPC 19 (R2) and CPC 18 (R2) IFRS 10 and 11, as issued by the International Accounting Standards Board (IASB). The managerial financial information reflects the Company s ownership interest in each shopping mall, except for Boulevard Belém and Boulevard Belo Horizonte, which are 100% consolidated, in line with the consolidated financial statements. The Company s non-accounting information was not specifically audited by the independent auditors, but were read in relation to the examination of the financial statements in accordance with NBC TA (ISA 720). Description of business, services and operating markets on December 31, 2016 The Company s main activities include ownership interest in shopping malls and providing services in the shopping mall segment, which include: (i) management, (ii) leasing of stores and spaces, and (iii) planning and development of malls. Aliansce is a full service company with expertise in every phase of the mall installation process, from the planning (feasibility studies of the project), development and launch of the mall to the management of its structural, financial, commercial, legal and operational aspects. Management and leasing of shopping centers and mall spaces Mall management consists of the administration of the strategy and daily activities of the mall, including the financial, legal, commercial and operational management of the project. Note that the management activities may be conducted by the Company and its subsidiaries. Leasing of shopping centers includes the lease of stores and mall spaces, as well as merchandising activities. Planning and development of malls The planning and development of shopping malls require profound knowledge of the sector, as the first phase includes a preliminary analysis of the project to better understand consumer

4 behavior in the mall s area of influence and the preparation of feasibility studies. Another important point is the definition of tenant mix, that is, the mix of stores operating in different sector, as well as a survey of the areas available for leasing. To conclude, the development of a mall consists of the following stages (i) identification of opportunities (ii) feasibility study; (iii) approval of investments; (iv) launch; v) construction; (vi) commercialization; and (vii) management. Policy for the reinvestment of income and distribution of dividends Shareholders are ensured by the Company s Bylaws a minimum dividend equal to 25% of net income from each fiscal year, adjusted in accordance with current legislation. Management may, upon approval by the shareholders general meeting, allocate up to 70% (seventy per cent) of the net profits to an Investment Reserve, established in the Bylaws. Management may also, based on the capital budget, allocate the remainder of the net profit for the Period not distributed as mandatory dividends, in its entirety or partially, to new investments, respecting in either case, the overall limit established in Article 199 of Law 6,404/76. Human Resources On December 31, 2016, Aliansce had 194 employees compared to 223 employees on December 31, Average employee turnover stood at 5.15% in 4Q16, compared to 4.26% in 4Q15. The Company and its subsidiaries hold agreements with outsourcing companies that provide a significant volume of labor, including: security services, food services for employees, cleaning and building maintenance. Our employee compensation system consists of income ranges on a vertical scale, combined with salary points on a horizontal scale, enabling job promotions and salary raises based on merit. The Company offers its employees several benefits such as medical assistance, meal and transportation vouchers, and life insurance. Moreover, there are no unhealthy or hazardous areas and/or activities in accordance with the current legislation. The Company s HR development and training policy includes corporate initiatives to increase, develop and improve employees skills for their professional growth, such as English language courses, undergraduate and graduate-level courses. Social Responsibility The Company s commitment to sustainability is proof of our concern with ethics in business, the development of communities around our projects, adequate use of natural resources and preservation of the environment. Through its shopping malls, the Company sponsors a number of social responsibility projects that provide cultural incentives and sponsorships, such as the "Transformar" ( Transform ) project at Via Parque Shopping which teaches housewives in the Cidade de Deus community techniques for the thorough utilization of food, which has helped bring down malnutrition levels in the community. The Company also provides support to sports and citizenship initiatives through the Via Vôlei project in the Grande Rio and Carioca shopping centers, which, through volleyball lessons, aids in the inclusion of children aged between 7 and 14 in communities near the shopping malls by fostering community values such as equality, solidarity and the importance of teamwork in becoming responsible citizens. The Company, which bets on sustainable development, has also implemented social and environmental responsibility projects such as the Lixo Zero - Transformando para preservar ( Zero Trash Transforming to Preserve ) project at Caxias Shopping, which is turning the mall into the first in southeast 2

5 Brazil to obtain the Zero Trash recognition. Today the mall has a waste treatment facility, which recycles water for reuse in toilets and gardening. The program includes the sorting of trash into different categories for recycling and transformation into organic compost. Market Arbitration Chamber The Company is bound to the Market s Chamber of Arbitration, in accordance with Article 38 of its Bylaws, as follows: Article 38 - The Company, its shareholders, managers and members of the Fiscal Council are required to solve, through arbitration, any and all disputes or controversies which may arise among them, connected to or arising from, specially, the application, validity, efficacy, interpretation, breach and its effects, of the provisions of the Brazilian Corporation Law, Company s Bylaws, the rules issued by the National Monetary Council, Central Bank of Brazil and CVM, as well as other rules applicable to the bond market operation generally, besides those provided for in the Novo Mercado Listing Regulation, Agreement of Participation in the Novo Mercado listing segment and the Arbitration Regulation of the Market s Arbitration Chamber. Relationship with External Auditors In compliance with CVM Instruction 381/03, we hereby inform that PricewaterhouseCoopers Auditores Independentes provided the Company only audit services in the period ended December 31, Reconciliation of the consolidated accounting and managerial financial statements The Company s reconciliation between accounting versus managerial financial information for the period ended December 31, 2016 and 2015 can be found below. The managerial information considers proportional consolidation of figures according to the ownership interests in subsidiaries and businesses. This consolidation method was discontinued as of January 1, 2013, in accordance with the adoption of CPC 18 and CPC 19. Additionally, pursuant to Circular Letter CVM/SNC/SEP No. 01/2016, the sale of Boulevard Corporate Tower, office tower attached to Boulevard Corporate Shopping, formalized in June 2014, was reclassified in accordance to Note 12 of the Company s Financial Statements, although formally and legally it is a sale ( Reclassification ). Therefore, the consolidated financial statements were adjusted to assess the transaction as an obligation and the consolidated financial statements at December 31, 2015 were adjusted in the same manner, affecting the balance sheet, income statement, comprehensive income statement and cash flow statement. Despite the above mentioned Reclassification, in order to present to the market and to the investors information suitable for comparison with information disclosed by the Company in previous years and most appropriate for the understanding of the Company and its financial situation, we present below managerial financial information that does not reflect this Reclassification. The Managerial financial information, as well as Company s non-accounting information presented below, have not been reviewed by the independent auditors. Please refer to the consolidated financial statements for the analysis of Company s information presented in accordance with accounting practices adopted in Brazil. 3

6 Reconciliation of the consolidated and managerial financial statements 2016 Conciliation between managerial financial information vs financial statements Period ended December 31, 2016 Continued operations (amounts in thousands of reais) Gross revenue from rental and services 542,963-60, ,665 Taxes and contributions and other deductions (55,412) - (3,279) (58,691) Net revenues 487,551-57, ,974 Cost of rentals and services (123,408) - (55,940) (179,348) Gross income 364,143-1, ,626 Operating income/expenses (112,751) - 5,878 (106,872) Sales, general and administrative expenses (105,632) - 47,248 (58,385) Equity Income 31,151 - (31,151) - Depreciation and Amortization (4,916) - (4) (4,920) Other net operating income (expenses) (33,354) - (10,215) (43,567) Financial income/(expenses) (247,215) 39,260 (3,375) (211,330) Net income (loss) before taxes and social contributions 4,177 39,260 3,986 47,424 Income and social contribution taxes (18,155) (13,348) (4,242) (35,745) Net income/(loss) of continued operations in the period (13,978) 25,912 (256) 11,678 Discontinued operations Aliansce Financial Statements Boulevard Corporate Tower Consolidation / Adjustment Cross off Aliansce Managerial Income from discontinued operations 4,109 (4,109) - - Income attributable to: Controlling Shareholders (17,766) 21,803-4,036 Minority Shareholders 7,897 - (256) 7,643 Net income/(loss) in the period (9,869) 21,803 (256) 11,678 Conciliation between EBITDA / Adjusted EBITDA Period ended December 31, 2016 Aliansce Financial Statements Boulevard Corporate Tower Consolidation / Adjustment Cross off (amounts in thousands of reais, except percentages) Aliansce Managerial Net income/(loss) for the period (9,869) 21,803 (256) 11,678 (+) Depreciation and amortization 66,985-6,358 73,343 (+)/(-) Financial expenses / (income) 247,215 (39,260) 3, ,330 (+) Income and social contribution taxes 18,155 13,348 4,242 35,745 EBITDA* 322,486 (4,109) 13, ,096 EBITDA MARGIN % 66.1% 60.9% (+)/(-) Non-recurring (expenses)/income 29, ,415 39,072 (+) Pre-operational expenses (+)/(-) Others 29, ,415 39,072 ADJUSTED EBITDA* 351,595 (3,561) 23, ,168 ADJUSTED EBITDA MARGIN % 72.1% 68.1% Conciliation between FFO / Adjusted FFO Period ended December 31, 2016 Aliansce Financial Statements Boulevard Corporate Tower Minority Interest Consolidation / Adjustment Cross off Aliansce 2016 (amounts in thousands of reais, except percentages) Net income (loss) for the period - Controlling shareholders (9,869) 21,803 - (256) (7,643) 4,035 (+) Depretiation and amortization 66, ,358 - (2,329) - 71,014 - (=) FFO * 57,116 21,803-6,102 (9,972) 75,049 FFO MARGIN % 11.7% (+)/(-) Non recurring expenses 29, ,415 (454) 38,618 (-) Straight line rent adjustments - CPC 06 (8,844) - - (607) 809 (8,642) (+) Stock Options 2, ,171 (+)/(-) Non-cash taxes 1,208 11, (1,557) 10,939 (-) CPC 20 - Capitalized Interest (669) (669) (+) SWAP (1,086) (1,086) - (=) Adjusted FFO * 79,004 33,582-14,968 (11,174) 116,379 AFFO MARGIN % 16.2% 22.3% * Non-accounting indicators 4

7 Reconciliation of the consolidated and managerial financial statements 2015 Conciliation between managerial financial information vs financial statements Period ended December 31, 2015 Aliansce Financial Statements Boulevard Corporate Tower Minorities Via Parque Consolidation / Aliansce Adjustment Cross off Managerial Continued operations Gross revenue from rental and services 542, , ,445 Taxes and contributions and other deductions (47,467) - - (2,405) (49,872) Net revenues 494, , , Cost of rentals and services (125,054) - - (25,839) (150,893) Gross income 369, , , Operating income/expenses 73,433 (12,484) - (18,515) 42,434 Sales, general and administrative expenses (76,479) ,235 (62,244) Equity Income 32, (32,493) - Depreciation and Amortization (4,020) (4,014) Other operating income/(expenses) 121,439 (12,484) - (263) 108, Financial income/(expenses) (259,016) 32,855-6,693 (219,468) - - Net income before taxes and minority interest 184,162 20,371-1, , Income and social contribution taxes (39,390) (6,926) - (6,235) (52,551) Net income/(loss) of continued operations in the period 144,772 13,445 - (5,122) 153,095 Discontinued operations (amounts in thousands of reais) Income from discontinued operations Income attributable to: Controlling Shareholders 131,971 13,445 - (1) 145,415 Minority Shareholders 12, (5,121) 7,680 Net income for the period 144,772 13,445 - (5,122) 153,095 Conciliation between EBITDA / Adjusted EBITDA Period ended December 31, 2015 Aliansce Financial Statements Boulevard Corporate Tower Minorities Via Parque Consolidation / Aliansce Adjustment Cross off Managerial (amounts in thousands of reais, except percentages) Net income 144,772 13,445 - (5,122) 153,095 (+) Depreciation and amortization 69, ,823 73,785 (+)/(-) Financial expenses / (income) 259,016 (32,855) - (6,693) 219,468 (+) Income and social contribution taxes 39,390 6,926-6,235 52,551 EBITDA* 513,140 (12,484) - (1,757) 498,899 EBITDA MARGIN % 103.7% 93.5% - (+)/(-) Non-recurring (expenses)/income (113,315) - - 2,030 (111,285) - ADJUSTED EBITDA* 399,825 (12,484) ,614 ADJUSTED EBITDA MARGIN % 80.8% 72.6% Conciliation between FFO / Adjusted FFO Period ended December 31, 2015 Aliansce Financial Statements Boulevard Corporate Tower Minority Interest Consolidation / Adjustment Cross off Aliansce 2015 (amounts in thousands of reais, except percentages) Net income (loss) for the period - Controlling shareholders 144,772 13,445 - (5,122) (7,680) 145, (+) Depretiation and amortization 69, ,823 (2,824) 70, (=) FFO * 214,734 13,445 (10,504) 216,376 FFO MARGIN % 43.4% 42.3% (+)/(-) Non recurring expenses (113,315) - - 2,030 - (111,285) (-) Straight line rent adjustments - CPC 06 (7,841) (2,394) 636 (8,964) (+) Stock Options 3, ,326 (+)/(-) Non-cash taxes 18,708 6,926-1,968 (1,307) 26,295 (-) CPC 20 - Capitalized Interest (5,319) (5,319) (+) SWAP 1, , (=) Adjusted FFO * 111,498 20, (11,175) 121,635 AFFO MARGIN % 22.5% 23.8% - * Non-accounting indicators 5

8 Balance Sheet Managerial Balance Sheet Aliansce Financial Statements Boulevard Corporate Tower Consolidation Cross off CPC 18/19 Aliansce Managerial ASSETS 12/31/ /31/ /31/ /31/ /31/ /31/ /31/ /31/2015 (amounts in thousands of reais) Current Cash and cash equivalents 21,226 15, ,692 2,167 22,917 17,592 Short-term investments 481, , ,322 1, , ,320 Real estate tax receivables 72, ,888 - Accounts receivable 93,937 89, ,443 12, , ,689 Dividends receivable 2, (2,761) Taxes recoverable 59,142 57, ,539 58,267 Other receivables 14,285 14, ,083 1,997 16,369 16,015 Total 746, , ,176 18, , , Non-Current Assets held for sale 175,345 - (175,345) Total Current Assets and non-current assets held for sale 921, ,078 (175,345) - 28,176 18, , ,883 Non-Current Accounts receivable Judicial deposits 2,630 18, (38) (2,503) 2,592 16,036 Borrowings and other accounts receivable 27,900 8, ,900 8,108 Values receivable 13,755 9, (1,547) ,209 9,476 Other receivables 2,067 3, , ,859 3,408 Investments 418, , (418,544) (413,779) Investment property - Corporate Tower - 174,945 - (174,945) Investment property - Malls 3,221,183 2,899, , ,274 3,466,548 3,145,963 Property, plant and equipment 6,680 7, (2) 6,683 7,327 Intangible assets 282, , , , , , Total Non-current Assets 3,975,330 3,818,130 - (174,945) (66,940) (65,848) 3,908,390 3,577,337 Total Assets 4,896,895 4,115, , ,945-38,764-47,043 4,682,787 3,893,220 LIABILITIES Current Suppliers 12,908 18, ,177 1,254 14,085 20,165 Loans and financing, real estate credit notes and debentures 222, , (3,051) (3,308) 219, ,802 Taxes and contributions payable 24,612 27,052 (85) (84) 1,159 1,366 25,687 28,334 Dividends payable 1,926 31, ,299 31,935 Obligations for purchase of assets 4,374 18, ,374 18,721 Other liabilities 34,371 23, (31) (318) 34,343 23,553 Liabilities related to non-current assets held for sale 256,813 - (256,813) Total Current Liabilities and liabilities related to non-current assets held for sale 557, ,420 (256,898) (84) (370) (825) 299, ,511 Non-Current Loans and financing, real estate credit notes and debentures 1,686,020 1,517, (32,262) (36,930) 1,653,759 1,480,355 Taxes and contributions to collect 6,937 7, ,937 7,234 Deferred income 24,619 28, ,006 3,548 28,625 31,821 Derivative financial instruments 4,891 5, ,891 5,978 Deferred income and social contribution tax 56,376 62,675 27,728 16,496 6,216 6,158 90,320 85,329 Obligations for purchase of assets 33,593 22, ,593 22,222 Other liabilities 3,615 13, ,344 14,170 Provision for contingencies 22,349 2, ,404 1,030 25,752 3,177 Obligation related to Investment Properties Commercial Tower - 223,379 - (223,379) Total Non-Current Liabilities 1,838,400 1,882,453 27,728 (206,883) (17,906) (25,284) 1,848,220 1,650,286 Shareholders' Equity (amounts in thousands of reais) Share Capital 2,013,854 1,413, ,013,854 1,413,854 Expenditure on issuance of shares (44,431) (43,714) (44,431) (43,714) Capital reserve 23,170 20, ,170 20,999 Treasury shares (8,430) (8,430) (8,430) (8,430) Revenue reserves 374, ,787 53,825 32, , ,809 Carrying value adjustments 46,246 45, ,246 45,283 Minority Interest 96,883 92, (20,488) (20,934) 76,397 71,622 Total Shareholders' Equity 2,501,314 1,912,335 53, ,022 0 (20,488) (20,934) 2,534,652 1,923,422 Total liabilities and shareholders' equity 4,896,895 4,115,208 (175,345) (174,945) (38,764) (47,043) 4,682,787 3,893,220 6

9 Cash Flow Cash Flow Statement Aliansce Financial Statements Boulevard Corporate Tower Consolidation Cross off Aliansce Managerial 12/31/ /31/ /31/ /31/2016 (amounts in thousands of reais) Operating Activities Net Profit/(Loss) for the period (17,766) 21,803 (1) 4,036 Adjustments to net profit due to: Straight line rent adjustment (8,844) - (607) (9,451) Depreciation and Amortization 66,866-6,358 73,224 Equity Income Gain (31,151) - 31,151 - Provision (Reversal of provision) for doubtful accounts 47,495 - (7,117) 40,378 Stock Option plan 2, ,171 Interest on Equity 241,063 - (6,331) 234,732 Provision for impairment loss on assets 23, ,111 Fair value of financial derivatives instruments (1,086) - - (1,086) Deferred income and social contribution tax 1,208 11, ,497 Others (2,357) - 1,179 (1,178) Funds from profits 320,710 33,034 24, ,434 Decrease (increase) in assets (64,411) - 6,401 (58,010) Accounts receivable (39,232) - 8,408 (30,824) Other credits (27,804) - (2,466) (30,270) Taxes recoverable 2, ,084 Increase (decrease) in liabilities 33,068 (33,434) 4,487 4,121 Suppliers (6,353) - (76) (6,429) Collectable taxes and contributions 52,223-4,126 56,349 Obligation related to BH Corporate Tower (CTBH) 33,434 (33,434) - - Other obligations¹ (40,825) - (21) (40,846) Deferred income (5,411) (4,953) Taxes paid (55,355) - (4,332) (59,687) Net Cash Used in Operating Activities 234,012 (400) 31, ,858 Investment Activities Acquisition of non current asset held for sale (400) Acquisition of fixed assets (217) - (1) (218) Acquisition of properties for investment - Mall (267,862) - (5,031) (272,893) Decrease (increase) in investments 24,431 - (24,431) - Reduction (increase) in securities (361,361) - (13,623) (374,984) Obligation for purchase of assets (19,643) - - (19,643) Acquisition of intangible assets (4,460) (4,351) Net Cash Used in Investment Activities (629,512) 400 (42,977) (672,089) Financing Activities Capital increase 600, ,000 Costs related to emission of shares (718) - - (718) Paid dividends (32,851) - - (32,851) Interest payment loans and financing / real estate credit note (198,356) - 6,958 (191,398) Principal payment loans and financing / real estate credit note (157,040) (156,285) Structuring costs - loans and financing / real estate credit note (229) - (172) (401) Interest payment of debentures (24,813) - - (24,813) Principal payment of debentures (26,743) - - (26,743) Payment of structuring cost - Debentures (7,949) - - (7,949) Issuance of loans and financing - - 3,714 3,714 Issuance of Debentures 250, ,000 Share buyback Net Cash Used in Financing Activities 401,301-11, ,556 Net cash and cash equivalent increase (reduction) 5,801 - (476) 5,325 Cash and Cash Equivalents at the end of the Period 21,226-1,691 22,917 Cash and Cash Equivalents at the beginning of the Period 15,425-2,167 17,592 Net change in Cash and Cash Equivalents 5,801 - (476) 5,325 ¹Includes payment of R$ 38.6 million for the settlement of Carioca Shopping's real estate tax. In March, 2017, Aliansce received the amount of R$ 72 million, referring to legal deposits related to this case. 7

10 Comparison of the consolidated financial statements and the managerial financial information for the periods ended December 31, 2015 and 2016: Financial Statements 4Q16 4Q15 4Q16/4Q15 Δ% (Amounts in thousands of Reais, except percentages) 2016/2015 Δ% Continued operations Gross revenue from rental and services 153, , % 542, , % Taxes and contributions and other deductions (14,920) (13,812) 8.0% (55,412) (47,467) 16.7% Net revenues 138, , % 487, , % Cost of rentals and services (32,520) (29,679) 9.6% (123,408) (125,054) -1.3% Gross income 106, , % 364, , % Operating income/(expenses) (58,062) (25,147) 130.9% (112,751) 73,433 n/a Sales, general and administrative expenses (37,496) (20,216) 85.5% (105,632) (76,479) 38.1% Equity income 8,847 13, % 31,151 32, % Depreciation and Amortization expenses (1,312) (1,101) 19.2% (4,916) (4,020) 22.3% Other net income (expenses) (28,101) (17,346) 62.0% (33,354) 121,439 n/a Financial income/(expenses) (47,803) (71,047) -32.7% (247,215) (259,016) -4.6% Net income before taxes and social contributions 363 9, % 4, , % Current income and social contribution taxes (6,521) 292 n/a (19,064) (20,682) -7.8% Deferred income and social contribution taxes 4,151 6, % 909 (18,708) n/a Net income (loss) of continued operations in the period (2,007) 16,338 n/a (13,978) 144,772 n/a Discontinued Operations Income from discontinued operations (479) - n/a 4,109 - n/a Income attributable to: Controlling Shareholders (5,491) 13,259 n/a (17,766) 131,971 n/a Minority Shareholders 3,005 3, % 7,897 12, % Net income (loss) for the period (2,486) 16,338 n/a (9,869) 144,772 n/a Managerial Financial Information 4Q16 4Q15 4Q16/4Q15 Δ% (Amounts in thousands of Reais, except percentages) 2016/2015 Δ% Gross revenue from rental and services 170, , % 603, , % Taxes and contributions and other deductions (15,777) (14,775) 6.8% (58,691) (49,872) 17.7% Net revenues 154, , % 544, , % 170,408, ,392, ,664, ,444,672 Cost of rentals and services (49,674) (39,823) 24.7% (179,348) (150,893) 18.9% Gross income 104, , % 365, , % Operating income/(expenses) (45,897) (37,505) 22.4% (106,872) 42,434 n/a Sales, general and administrative expenses (14,529) (15,630) -7.0% (58,385) (62,244) -6.2% Depreciation and Amortization expenses (1,314) (1,101) 19.3% (4,920) (4,014) 22.6% Other net income (expenses) (30,054) (20,773) 44.7% (43,567) 108,692 n/a Financial income/(expenses) (45,512) (60,134) -24.3% (211,330) (219,468) -3.7% Net income before taxes and social contributions 13,549 16, % 47, , % Current income and social contribution taxes (7,689) (347) n/a (23,248) (24,948) -6.8% Deferred income and social contribution taxes (1,771) 4,144 n/a (12,497) (27,602) -54.7% Net income (loss) for the period 4,090 19, % 11, , % Income attributable to: Controlling Shareholders 1,916 17, % 4, , % Minority Shareholders 2,173 2, % 7,643 7, % Net income (loss) for the period 4,090 19, % 11, , % 8

11 Cash and Cash Equivalents and Indebtedness The table below shows the reconciliation between consolidated net debt and managerial net debt in 4Q16. The decrease in net debt was a result of the recognition of the Company s share of the net effect of financing for Parque Shopping Belém and Parque Shopping Maceió: Debt breakdown - Financial Statements 4Q16 Effects of CPC 18/19 Managerial 4Q16 (amounts in thousands of reais) Banks 1,022,281 (35,313) 986,968 CCI/CRI 504, ,581 Obligation for purchase of assets 37,967-37,967 Debentures 381, ,335 TOTAL DEBT 1,946,165 (35,313) 1,910,852 Cash and Cash Equivalents (503,207) (17,014) (520,221) Real estate tax receivables¹ (72,888) - (72,888) TOTAL AVAILABLE (576,095) (17,014) (593,109) NET DEBT 1,370,070 (52,327) 1,317,743 ¹Real estate tax receivables refering to the legal settlement between Carioca Shopping and the City of Rio de Janeiro signed in Dec/16 and received on 1Q17. 9

12 (A free translation of the original in Portuguese) Independent auditor's report To the Board of Directors and Stockholders Aliansce Shopping Centers S.A. Opinion We have audited the accompanying parent company financial statements of Aliansce Shopping Centers S.A. (the "Company"), which comprise the balance sheet as and the statements of operations, comprehensive income (loss), changes in equity and cash flows for the year then ended, as well as the accompanying consolidated financial statements of Aliansce Shopping Centers S.A. and its subsidiaries (""), which comprise the consolidated balance sheet as at December 31, 2016 and the consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aliansce Shopping Centers S.A. and of Aliansce Shopping Centers S.A. and its subsidiaries as, and the financial performance and the cash flows for the year then ended, as well as the consolidated financial performance and the cash flows for the year then ended, in accordance with accounting practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Basis for opinion We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Parent Company and Financial Statements section of our report. We are independent of the Company and its subsidiaries in accordance with the ethical requirements established in the Code of Professional Ethics and Professional Standards issued by the Brazilian Federal Accounting Council, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. PricewaterhouseCoopers, Rua do Russel, Glória, Rio de Janeiro, RJ, Brasil , Caixa Postal 949, Rio de Janeiro, RJ T: (21) , 1

13 Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the parent company and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Matters Why it is a Key Audit Matter How the matter was addressed Why it is a Key Audit Matter How the matter was addressed in the audit Provision for impairment of investment properties (Notes 3.13, 13 and 14) On December 31, 2016, the Company and its subsidiaries have investments in shopping malls registered under "Property for Investment" of R$ 3,221,183 thousand, as well as goodwill related to the acquisition of these assets, recorded under "Intangible assets" of R$ 226,071. The Company and its subsidiaries carried out an impairment test for these assets and a provision for loss of R $ 38,232 thousand was recorded in This provision involves inherent uncertainty in estimating the future cash flows generated by these assets as well as judgments of operating and financial assumptions applied in the calculation. In connection with this same calculation, the fair value of the investment properties for disclosure purposes in a note to the financial statements is also determined. In the process of identifying the existence of impaired assets, the Company uses the largest number of external and internal sources available at the date of preparation of the financial statements, in order to identify indications that any of its assets are impaired. In determining the recoverable amount of the asset, it is estimated based on the future cash flows derived from the continuous use of related assets in their current condition, approved by management, discounted to present value using a risk-free rate of return. This was an important area in our audit since the measurement of the recoverable value of these investment properties involves judgments and Our audit procedures included, among others, the understanding and evaluation of the internal control environment of the process of measuring the recoverable value of the assets of the Company and its subsidiaries. We also evaluated the governance around this process, including approving the budgets used in this calculation and the reviews of the teams of specialists in financial calculations in the Company. In relation to these specialists, we observed the qualification and the experience, as well as, evaluating the extent and the depth of the work accomplished. In addition, with the support of our team of specialists in financial calculations, we performed, on a sample basis, a methodological review of the operating and financial assumptions used, discussing them with management, as well as recalculating these amounts, in order to evaluate the reasonableness of the amounts calculated. As a result of the audit procedures adopted, we consider that the amounts calculated are based on reasonable criteria and assumptions and that the disclosures are consistent with the information obtained by us. 2

14 Why it is a Key Audit Matter How the matter was addressed in the audit subjectivities about future events, internal and external to the Company's business, for which small changes in the assumptions may result in material impacts on the valuation of the provision for impairment. Rental income (Notes 3.20 and 22) A portion of the transactions involving rental income have a variable component that includes grace periods, specific clauses in contracts and renewals, discounts granted, among others. Despite being established in contracts, they have individual characteristics and may be of a complex nature. There are different conditions established in rental contracts, therefore, controls are required to determine the amounts and the period in which the variable rental income should be recognized. Our audit approach included, among others, the following procedures described below. Understanding of the relevant internal controls of the process of recognizing rental income and accounts receivable, and the relevant information technology systems that support these processes and controls. We performed, on a sample basis, confirmation of the balance of accounts receivable at December 31, We considered the rental income a significant area in our audit process due to the special characteristics We performed tests on selected transactions related related to the process of recording and processing of to rental agreements, parameterized in the systems contractual information, as well as the importance of used by the Company, as well as, observing the the internal controls established. corresponding adherence to policies applied for rent, discounts and variable income. We inspected, on a sample basis, certain revenue transactions recognized in the Company's results, inspecting the physical documentation and customer receipts. We consider that the amounts and information disclosed are consistent with the data and documents obtained in our audit. Other matters Statements of Value Added The parent company and consolidated Statements of Value Added for the year ended December 31, 2016, prepared under the responsibility of the Company's management and presented as supplementary information for IFRS purposes, were submitted to audit procedures performed in conjunction with the audit of the Company s financial statements. For the purposes of forming our opinion, we evaluated whether these statements are reconciled with the financial statements and accounting records, as applicable, and if their form and content are in accordance with the criteria defined in Technical Pronouncement CPC 09 - "Statement of Value Added". In our opinion, these Statements of Value Added have been properly prepared in all material respects, in accordance with the criteria established in the Technical Pronouncement, and are consistent with the parent company and consolidated financial statements taken as a whole. 3

15 Other information accompanying the parent company and consolidated financial statements and the auditor's report The Company s management is responsible for the other information that comprises the Management Report. Our opinion on the parent company and consolidated financial statements does not cover the Management Report, and we do not express any form of audit conclusion thereon. In connection with the audit of the parent company and consolidated financial statements, our responsibility is to read the Management Report and, in doing so, consider whether this report is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement in the Management Report, we are required to report that fact. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the parent company and consolidated financial statements Management is responsible for the preparation and fair presentation of the parent company and consolidated financial statements in accordance with accounting practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the parent company and consolidated financial statements, management is responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company and its subsidiaries or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing Company and its subsidiaries financial reporting process. Auditor s responsibilities for the audit of the parent company and consolidated financial statements Our objectives are to obtain reasonable assurance about whether the parent company and consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Brazilian and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the parent company and consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is 4

16 higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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 internal control of the Company and its subsidiaries. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability of the Company to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the parent company and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the parent company and consolidated financial statements, including the disclosures, and whether these financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Rio de Janeiro, March 27,

17 (a publicly listed company) Balance sheets at December 31 All amounts in thousands of reais (A free translation of the original in Portuguese) Parent Parent Note Note Assets Liabilities and equity Current assets Current liabilities Cash and cash equivalents 6 21,226 15,425 3,901 2,226 Trade payables 12,908 18,911 4,467 6,678 Short-term investments 7 481, , ,129 84,172 Loans and financings CCI/CRIs and debentures , ,110 55,671 57,139 Amounts receivable - IPTU 18 72,888 Taxes and contributions payable 16 24,611 27,052 2,248 3,793 Trade receivables 8 93,937 89,604 13,750 13,855 Dividends payable 1,926 31,755 31,343 Dividends and interest on capital receivable 2,761 18,323 2,634 Obligations for purchase of assets 27 4,374 18,721 Taxes recoverable 9 59,142 57,411 37,113 34,986 Other payables 19 34,372 23,871 6,534 4,097 Other receivables 14,285 14,018 5,148 4, , ,420 68, , , , , ,903 Liability related to non-current assets held for sale , ,813 Non-current assets held for sale , , , , , ,345 Non-current liabilities Loans and financings CCI/CRIs and debentures 15 1,686,020 1,517, , ,745 Non-current assets Taxes and contributions payable 16 6,937 7, Deferred income tax and social contribution 20 11,173 Deferred income 17 24,619 28,273 3,473 3,309 Judicial deposits 18 2,630 18, Derivative financial instruments 4 4,891 5,978 4,891 5,978 Loans receivable 27 27,900 8,108 15,572 4,024 Deferred income tax and social contribution 20 56,376 62,675 3,067 Amounts receivable 10 13,755 9, Obligations for purchase of assets 27 33,593 22,222 Other credits 2,067 3, Other payables 19 3,615 13,260 29,612 26,784 Provision for contingencies 18 22,349 2,147 2,792 2,792 46,352 39,090 27,619 4,595 Obligations related to investment properties commercial tower , ,379 1,838,400 1,882, , ,361 Investments , ,951 2,621,570 2,245,080 Investment properties commercial tower ,945 Investment properties shopping malls ,899, , ,629 Total liabilities 2,395,581 2,202, , ,411 Property and equipment in use 6,680 7,329 4,266 4,757 Intangible assets , ,126 11,034 16,226 3,928,978 3,779,040 2,842,786 2,410,692 Equity 21 Share capital 2,013,854 1,413,854 2,013,854 1,413,854 Expenditure with issuance of shares (44,431) (43,714) (44,431) (43,714) Capital reserve 23,170 20,999 23,170 20,999 Treasury shares (8,430) (8,430) (8,430) (8,430) Revenue reserves 374, , , ,788 Carrying value adjustments 46,246 45,282 46,246 45,282 Equity attributable to controlling Stockholders 2,404,431 1,819,779 2,404,431 1,819,779 Non-controlling interest 96,883 92,556 Total equity 2,501,314 1,912,335 2,404,431 1,819,779 Total assets 4,896,895 4,115,208 3,308,769 2,557,190 Total liabilities and equity 4,896,895 4,115,208 3,308,769 2,557,190 The accompanying notes are an integral part of these financial statements. 1 of 81

18 (a publicly listed company) Statements of operations Years ended December 31 All amounts in thousands of reais, except for earnings per share (A free translation of the original in Portuguese) Parent Note Continued operations Net revenue from rentals and services , , , ,062 Cost of rentals and services 23 (123,408) (125,054) (69,610) (66,772) Gross profit 364, ,745 43,188 44,290 Income/(expenses) General, sale and administrative expenses 24 (110,548) (80,499) (64,634) (62,857) Equity in the results of investees 11 31,151 32,493 88, ,598 Other income (expenses), net 26 (33,354) 121,439 (4,541) 136,032 (112,751) 73,433 19, ,773 Finance income 25 Finance costs (288,184) (298,155) (112,770) (126,183) Finance income 40,969 39,139 18,487 27,705 (247,215) (259,016) (94,283) (98,478) Profit (loss) before income tax and social contribution 4, ,162 (32,006) 145,585 Income tax and social contribution 20 (18,155) (39,390) 14,240 (13,614) Profit (loss) for the year of the continued operations (13,978) 144,772 (17,766) 131,971 Discontinued operations Profit for the year of discontinued operations 12 4,109 Profit (loss) for the year (9,869) 144,772 (17,766) 131,971 Profit (loss) attributable to: Controlling stockholders (17,766) 131,971 (17,766) 131,971 Non-controlling stockholders 7,897 12,801 Result per share of continued and discontinued operations attributable to the Company s stockholders during the year (in R$ per share): Basic earnings (loss) per share (in R$) 21 Of continued operations (0,1273) 0,8181 (0,1273) 0,8181 Of discontinued operations 0,0239 0,0239 (0,1034) (0,1034) Diluted earnings (loss) per share (in R$) 21 Of continued operations (0,1247) 0,7953 (0,1247) 0,7953 Of discontinued operations 0,0234 0,0234 (0,1013) (0,1013) The accompanying notes are an integral part of these financial statements. 2 of 81

19 Statements of comprehensive income (loss) Years ended December 31 All amounts in thousands of reais (A free translation of the original in Portuguese) Parent Note Profit (loss) for the year (9.869) (17.766) Other comprehensive income: Items that will be reclassified to profit or loss Changes in derivative financial instruments - Hedge Accounting 4 (1.034) (1.034) Total comprehensive income (9.869) (17.766) The accompanying notes are an integral part of these financial statements. 3 of 81

20 Statements of changes in equity Years ended December 31 All amounts in thousands of reais (A free translation of the original in Portuguese) Revenue reserves Share capital Expenditure with issuance of shares Capital reserve Legal reserve Unrealized profit reserve Profit retention Carrying value adjustments Retained earnings Additional dividends proposed Treasury shares Total Non-controlling interests Total At January 1, ,367,977 (43,714) 17,673 27,437 49, ,697 46,288 69,315 1,751, ,612 1,882,689 Distribution of complementary dividends related to 2014 (Note 21) (69,408) (69,408) (69,408) Profit for the year 131, ,971 12, ,772 Constitution of legal reserve (Note 21) 6,599 (6,599) Constitution of profit retention reserve 91,652 (91,652) Variation of hedge accounting fair value (1,034) (1,034) (1,034) Capital increase (Note 21) 45,877 45,877 45,877 Interest on capital (16,000) (16,000) (2,008) (18,008) Repurchase of shares (Note 21) (8,430) (8,430) (8,430) Minimum dividends (17,720) (17,720) (17,720) Constitution of complementary dividends Stock options granted 3,326 3,326 3,326 45,877 3,326 6,599 91,652 (1,034) (69,315) (8,430) 68,675 10,793 79,468 Transactions with non-controlling stockholders directly in equity: Acquisition of non-controlling interests (49,849) (49,821) At December 31, ,413,854 (43,714) 20,999 34,036 49, ,349 45,282 (8,430) 1,819,779 92,556 1,912,335 The accompanying notes are an integral part of these financial statements. 4 of 81

21 Statements of changes in equity Years ended December 31 All amounts in thousands of reais (A free translation of the original in Portuguese) Revenue reserves Share capital Expenditure with issuance of shares Capital reserve Legal reserve Unrealized profit reserve Profit retention Profit retention Retained earnings (accumulated deficit) Treasury shares Total Non-controlling interests Total At January, ,413,854 (43,714) 20,999 34,036 49, ,349 45,282 (8,430) 1,819,779 92,556 1,912,335 Loss for the year (17,766) (17,766) 7,897 (9,869) Absorbtion of losses (17,766) 17,766 Capital increase (Note 21) 600, , ,000 Expenditure with issuance of shares (718) (718) (718) Stock options granted 2,171 2,171 2, ,000 (718) 2,171 (17,766) 583,687 7, ,584 Transactions with non-controlling stockholder directly in equity: Additional acquisition of non-controlling interests (3,570) (2,606) At December 31, ,013,854 (44,431) 23,170 34,036 49, ,583 46,246 (8,430) 2,404,431 96,883 2,501,314 The accompanying notes are an integral part of these financial statements. 5 of 81