JHSF Participações S.A.

Transcription

1 JHSF Participações S.A. as at December 31, 2016 KPDS

2 Conteúdo Management Comments 3 Independent Auditor s Report in the Individual and Financial Statements(1) 10 Balance sheet 17 Income statement 19 Cash flow statements 22 Financial Statements 23 Statement of the added value 25 Notes to the financial statements 26 2

3 FOURTH QUARTER AND YEAR OF 2016 EARNINGS RELEASE Management Comments 1 Strategy JHSF Participações S.A. ( Company or JHSF ) invests in Brazil in businesses focused on high income individuals, developing and managing unique and innovative projects in shopping mall, hotel and restaurant, real estate development and executive airport sectors. The decision-making process of JHSF Management is based in the balance between: (i) the strengthening of the Operating Income; (ii) the streamlining in capital allocation; and (iii) the actions to reduce the cost of equity and third party capital (spreads). Taken together, these measures contribute to the value creation that we intend to deliver to our shareholder and stakeholders. JHSF maintains assets to be developed, with value creation potential, which will be implemented as long as market conditions and funding structure are appropriate. The Company s Management has invested, and will keep investing, in internal mechanisms and procedures of integrity, audit and incentive to report irregularities and the effective application of codes of ethics and conduct. Our Business Recurring Income 2 : Comprises (i) four shopping malls - Cidade Jardim ( SCJ ), Bela Vista ( SBV ), Ponta Negra ( SPN ) and Catarina Fashion Outlet ( CFO ); (ii) shopping mall services - administration, parking and the supply of energy and telecommunications; and (iii) retail - high-end retail brands. Hotel and Restaurant: Hotel and restaurant operations under Fasano brand. There are 4 hotels in operation and 5 already contracted (Angra dos Reis, Belo Horizonte, Salvador, Trancoso and Miami), as well as 14 restaurants (São Paulo, Rio de Janeiro and Brasilia). Real Estate Development: Business division focused on selling the existing inventory and managing real estate receivables. Currently we are considering the possibility of selectively resuming projects on the existing landbank to be developed in the surroundings of SCJ. Executive Airport: São Paulo Catarina Executive Airport, under construction. 1 Disclaimer: Management makes forward-looking statements concerning future events that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of its management, and on information currently available to the Company. Forward-looking statements include statements regarding JHSF s intentions, estimates or current expectations or those of its Board of Directors or Executive Officers. Forward-looking statements also include information concerning the Company s possible or presumed future operating results, as well as statements preceded by, followed by, or including the words believes, may, will, continues, expects, envisages, intends, plans, estimates or similar expressions. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur. JHSF s future results and the creation of shareholder value may differ materially from those expressed in or suggested by these forward-looking statements. Many of the factors that will determine these results and values are beyond the Company s ability to control or predict. 2 The sale of Shopping Metro Tucuruvi ( SMT ) was concluded on December 21 st, And the sale of 33% of SCJ was on December 29 th,

4 Capital Structure In 2016 the Company and its subsidiaries sold (i) the international assets (commercial property in Manhattan, residential property under construction in Manhattan and a project in Punta del Leste), (ii) Companhia Metro Norte, the concessionaire of SMT and, (iii) 33% of the property where SCJ is operated. Funds from these transactions were used in the process of the Company s capital structure improvement, allowing the reduction of allocated capital, with an estimated effect in debt reduction of about R$1.5 billion over the achieved in September Resulting from this reduction, we estimate an annual interest saving of around R$252 million. In addition, if confirmed the process of interest rate decline, the remaining nominal cost of debt, of R$1.2 billion, will be lower than in 2016, as 83% of Company indebtedness are linked to CDI, with current spread of 3.25% per year, Operating cash flow from sold assets totaled around R$70.0 million in With the conclusion of the transactions, the Company may also benefit from the reduction of future capex demanded mainly by assets held abroad, in the amount of USD 80 million in two years. Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Gross Debt (R$ million) NOTE: The Gross Debt in December 2016 was adjusted by the receipt of R$260 million on January 2 nd, [The remainder of this page was intentionally left blank] 4

5 Company s Operational Environment in 2016 By the end of 2016, the consumer confidence index (ICC) reached the lowest level since June. For the second consecutive month, there was a decrease in consumer satisfaction in relation to the current scenario and the worsening of expectations for the following months. The Current Situation index went down to the lowest ever level while the Expectations index declined reaching its lowest since June The shopping mall industry showed resilience to the period of economic recession 4, with a sales growth of 4.3% vs.2015, reaching R$157.9 billion 5. In tourism, the year was marked by (i) Rio 2016 Olympic Games, and (ii) the political-economic instability. The 2016 consolidated results decreased in occupancy rate and in RevPAR, -6.3% and -3.7% respectively, while the average daily increased by 2.7% in relation to In the real estate segment, in 2016, there was a reduction of the number of residential units sold (- 19.7%) and of the number of units launched (-23.3%) 7. Recurring Income 8 Sales by retailers in JHSF s four shopping malls rose to 6.5% over 2015 (4Q16: +4.1% vs. 4Q15), highlighting the records of sales registered in CFO over the year. The indicators of SSS and SAS increased by 1.1% and 2.4%, respectively in comparison with 2015 (+2.1% and +3.8% vs. 4Q15). SSR and SAR grew by 6.8% and 4.3% respectively, fueled by the impact of contract renewals in SCJ and the reduction of temporary discounts granted in early 2016 in SPN and SBV (+7.3% and 3.5% vs. 4Q15, respectively). Hotel and Restaurant In 2016, the Hotel division showed an increase in Average Daily and RevPAR, +16.6% and +11.8% respectively, and a decrease of 3.6% in Occupancy Rate. In the Restaurant division there was a growth in Average Couvert, +5.0%, and a fall of 0.7% in the number of couverts sold. In 4Q16, the operating indicators of the Hotel division dropped in comparison to 4Q15 (Average Daily - 3.5%; RevPAR -16.2%; and Occupancy Rate -11.1%), it was negatively impacted by São Paulo and Rio de Janeiro operations. On the other hand the Restaurant division had a growth of 2.6% in number of couverts sold and a decrease of 1.7% in Average Couvert. In December 2016, after going through an expansion process, Hotel Fasano Las Piedras resumed its operations with Locanda Fasano. There are 10 new apartments and suites in addition to the 20 bungalows already in the property. Investment made by its Entrepreneur. 3 Source: Report: Sondagem do Comercio December Consumer Confidence Index FGV IBRI 4 Source: Report: Marketing Positioning Retail Brazil 2015/2016 Cushman & Wakefield 5 Source: Report: Fluxo de Visitantes Em Shopping Centers Cresce em Dezembro Associação Brasileira de Shopping Centers (ABRASCE) 6 Source: Report: infohb Ed. 113 December 2016 Fórum de Operadores Hoteleiros do Brasil 7 Source: Report: Pesquisa do Mercado Imobiliário Residencial December 2016 Secovi-SP (Housing Builders Association). 8 Recurring income consists of: (i) Shopping Malls, (ii) Other Services and (iii) Retail. 5

6 Real Estate Development At the beginning of 2015, the construction work of Bosque Cidade Jardim ( BCJ ) was halted due to the civil public environmental suit. The Company has the comfort that the requirements made by the competent authorities during the licensing process and has the necessary licenses and authorizations to carry out the work, which at the time of the halt, were about 95% concluded. Through legal advice, legal measures to reestablish the normal flow of the project execution have been taken and are in progress to reverse the embargo. JHSF Management has fully provisioned the amounts contracted in BCJ. By occasion of an eventual resumption of the works, the Company will reevaluate the provisioning. It should be noted that the debit balance - to costumers - is around R$5.0 million Thus, contracted sales in Real Estate Development business were positively impacted by the sales performance of Fazenda Boa Vista, where the Company is currently focusing its commercial efforts, which partially offset the provisioning of contracted amounts in BCJ. In 2016, the contracted sales were also impacted by a significant cancellation of a customer-investor at Fazenda Boa Vista, accounted in 3Q16. Executive Airport Currently in the pre-operational phase, the São Paulo Catarina Executive Airport project will have a 2,000 meters runway, approximately. The estimated CAPEX to be realized is around R$37.0 million, which sources of capital are (i) third-party capital - BNDES financing; and (ii) equity. [The remainder of this page was intentionally left blank] 6

7 Management Board of Directors José Auriemo Neto - Chairman Carlos Eduardo Andreoni Ambrósio - Independent Member Luiz Gonzaga de Mello Belluzo - Independent Member Osvaldo Roberto Nieto - Independent Member Richard Barczinksi - Member Eduardo Silveira Camara - Member Thiago Alonso de Oliveira - Member Board of Executive Officers Eduardo Silveira Camara - Chief Executive Officer Wilmar Silva Rodrigues - Executive Vice President Thiago Alonso de Oliveira - Chief Financial Officer and Investor Relations Officer Fiscal Council Antonio Carlos Rovai - Sitting Member Ariovaldo dos Santos - Sitting Member Héctor José Alfonso - Sitting Member Bruno Meirelles Salotti - Alternate Member Clovis Antônio Pereira Pinto - Alternate Member Francisco Montagner Neto - Alternate Member Statutory Audit Committee Ademir José Scarpin - Sitting Member Osvaldo Roberto Nieto - Sitting Member Renato Ferreira Barbosa - Sitting Member The Financial Statements were analyzed and approved for disclosure by the Board of Directors at a meeting on March 29, 2017, having been previously examined by a meeting of the Fiscal Council on March 27, The comments on the Company s consolidated performance are available on the investor relations website ri.jhsf.com.br. Audit Pursuant to CVM Instruction 381/03, we hereby declare that the payments made by JHSF and its subsidiaries to KPMG Auditores Independentes were related to the external audit of the financial statements, as well as to the forensic audit service realized in Arbitration The Company is bound to arbitration by the Market Arbitration Chamber, pursuant to the Arbitration Clause in its Bylaws. 7

8 Comments on the 4Q16 and 2016 Financial Statements Gross and Net Revenue In Recurring Income, which comprises Shopping Mall operations, Mall Services and Retail, there was a growth of Shopping Malls Gross Revenue in both periods (+4%). Such growth partially offset the Revenue decrease of the other two divisions, which is due to: (i) the sale of certain international brands retail operations, affecting Retail and (ii) due to the drop in energy sale prices, impacting Other Services. Throughout 2016, the Hotel and Restaurant business adopted a new corporate configuration that aims the simplification of the internal processes. The change has amended the recognition of the Gross Revenue and of the Taxes on Revenues. Gross Revenue from Real Estate Development in 4Q16 was impacted by the fully provisioning of the amounts contracted in the BCJ project, an impact of R$62.7 million in Gross Revenue. In the accumulated of the year, the decline in Gross Revenue still reflects the significant cancellation of a client-investor at Fazenda Boa Vista, in July 2016, effect of R$40.4 million. Cost of Goods and Services Sold (COGS) In 4Q16, the Cost of Goods Sold (COGS) variation resulted essentially from the COGS reduction in Real Estate Development business, due to the reversal of costs incurred in BCJ. In 2016, COGS fell due to the reduction of the prices of electric energy sold in Recurring Income business. In the Hotel and Restaurant business COGS remained stable. The Real Estate Development business was impacted by cancellations and by the provisioning already mentioned. Gross Profit As a result of the factors already described in this release, the Gross Profit fell in both periods analyzed. Operating Expenses In Recurring Income business, in 2016, the growth of Operating Expenses was explained by: (i) Commercial Expenses, by marketing campaigns realized over the year; and (ii) Administrative Expenses, by payment of employee bonuses, terminations and key money from new leases. In 4Q16, the reduction in Operating Expenses was due to reversal of provisions. In 2016, the reduction in Hotel and Restaurant business was mainly due to the decrease of Commercial Expenses, as well as to the greater operational efficiency and to the decline of Administrative Expenses. The year was also impacted by a reversal of provisions. Comparing the quarters, Expenses were steady. In both analyzed period, Expenses with Real Estate Development fell as a result of the reversal of receivables accounts provisions (effect of BCJ and of Horto Bela Vista project). Throughout the year, Holding Operating Expenses were impacted by: (i) expenses with service providers in structuring of financial operations (sale of international assets and debt reconstitution); (ii) actions to improve the Company s compliance program; and (iii) loss recognition, with no cash effect for the Company, due to the sale of SMT - also affecting the 4Q16 Expenses. 8

9 Investment Properties and Fair Value The Fair Value of Investment Properties ( IPs ), which evaluation is annually made by external specialists (Ernst & Young), using the discounted cash flow at market rates method, presented an appreciation of R$35.6 million in 2016 (R$313.9 million in 2015). Adjusted EBITDA and EBITDA Reconciliation Adjusted EBITDA, excluding non-recurring effects, grew by 14% year-on-year. In both periods, we registered a growth in Adjusted EBITDA Margin. Net Financial Result The 2016 Financial Revenues was formed by: (i) interest of promising purchasers, R$11.5 million; (ii) income from financial investments, R$4.2 million; (iii) interest on real estate receivables, R$3.1 million; (iv) Fx impact on real estate receivables, R$1.3 million; and (v) other financial revenues amounting to R$2.4 million. The 2015 variation was due the lower volumes of funds invested over the year. The Financial Expenses consisted of: (i) interest on loans and financing totaling R$235.3 million; (ii) Fx on loans with the BNDES, totaling R$20.1 million (iii) financial expenses related to cancellations recognized in 2016, R$11.4 million (iv) obligations with project partners amounting to R$10.2 million (return paid to JHSF Rio Bravo Fazenda Boa Vista FII quota holders); (v) amortization of loan commissions related to debt rollover and settlement over the year, R$8.9 million; (vi) IOF tax, R$5.3 million; and (v) other expenses of R$20.5 million. The 2015 variation is explained by the higher bank spreads and fees for debt contract throughout Income Taxes and Net Income The net income decreased as a result from the factors mentioned above. Cash and Cash Equivalents and Debt Cash, Equivalents and Securities: The decline of the consolidated position during 2016 was due to Management s decision to reduce gross debt using exceeding cash. Debt: The Company ended the year with an average nominal cost of 16.8% p.a., which fell due to the reduction of the interest rate. The amount of gross indebtedness that JHSF presented in the end of 2016 do not consider part of the funds (R$260.0 million) obtained from the sale of 33% of SCJ, received on January 2 nd, The debt was adjusted to better present the effects from the sale of assets in In January 2017, the Company s gross debt totaled R$1,120 million and the Net Debt/EBITDA LTM indicator has reached 2.8 EBITDA 9. ******* 9 Adjusted LTM EBITDA 2016: R$249.9 million / 2015: R$218.8 million. 9

10 KPMG Auditores Independentes Rua Arquiteto Olavo Redig de Campos, 105, 6º andar - Torre A São Paulo/SP - Brasil Caixa Postal CEP São Paulo/SP - Brasil Telefone 55 (11) , Fax 55 (11) Independent Auditor s Report in the Individual and Financial Statements To the Shareholders and Management of the Company JHSF Participações S.A. São Paulo - SP Opinion We have audited the individual and consolidated financial statements of JHSF Participações S.A. ( the Company ), respectively referred to as Parent and, which comprise the statement of financial position, the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information. Opinion on the individual financial statements In our opinion, the accompanying individual financial statements present fairly, in all material respects, the financial position of JHSF Participações S.A. ( the Company ) as at December 31, 2016, and of its financial performance and its cash flows for the year then ended in accordance with Accounting Practices Adopted in Brazil. Opinion on the consolidated financial statements In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the JHSF Participações S.A as at December 31, 2016, and of its consolidated financial performance and its cash flows for the year then ended in accordance with Accounting Practices Adopted in Brazil and with International Financial Reporting Standards (IFRS) applicable to real estate development entities in Brazil and approved by the Accounting Pronouncements Committee (CPC), the Brazilian Securities Commission (CVM) and the Federal Accounting Council (CFC). 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 Auditors Responsibilities for the Audit of the Individual and Financial Statements section of our report. We are independent of the Company and its subsidiaries in accordance with the relevant ethical requirements included in the Accountant Professional Code of Ethics ( Código de Ética Profissional do Contador ) and in the professional standards issued by the Brazilian Federal Accounting Council ( Conselho Federal de Contabilidade ) 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 opinion. KPMG Auditores Independentes, uma sociedade simples brasileira e firmamembro 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

11 Emphasis - Guideline OCPC 04 issued by the Accounting Pronouncements Committee As mentioned in Note 2, the individual (Company) and consolidated financial statements were prepared in accordance with the accounting practices adopted in Brazil. The consolidated financial statements prepared in accordance with the IFRS applicable to real estate development entities also consider Guideline OCPC 04 issued by the Accounting Pronouncements Committee (CPC). This guideline deals with the recognition of the revenue from this sector and involves matters related to the meaning and adoption of the concept of continuous transfer of the risks, benefits and control over real estate unit sales, as described in further details in Note 6.e. Our opinion does not contain exception in view of this matter. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the individual and consolidated financial statements of the current period. These matters were addressed in the context of our audit of the individual and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Investigation - Acrônimo operation - Parent company and During the year, as mentioned in note 36, the Company became aware of plea bargain that mentioned participation of some of its executive in alleged undue payments that motivated conduction of search and seizure, in the ambit of Acrônimo operation, of information and documents of the Company. As a result of this situation, the Company contracted a specialized law firm to conduct independent internal investigation to determine the facts. After receiving the communication from Mr. José Auriemo Neto, Chairman of the Board of Directors and controlling shareholder, the Company was informed about the signing of his agreement of collaboration with the proper authorities, already homologated by the Superior Court of Justice, and after this the Company decided to close the process of Internal Investigation. This subject was addressed as significant in our audit due to the high level of judgment involved in the determination and conclusion concerning the fairness of the scope of the investigation, forensic procedures and techniques adopted, as well as in the determination of the assumptions that resulted in the conclusions with respect to the impacts of the result of the investigation on the individual and consolidated financial statements. How our audit conducted this matter Among other procedures, our works comprised: (i) Discussions with top management, Tax Council and Statutory Audit Committee, about the scope and the results of the internal investigations conducted by the Company. (ii) Involvement of our experts in the forensic investigation area to assess the scope and methodology used in the Internal Investigation, follow up on the work conducted by the Company s outside legal advisors and determine other procedures deemed necessary in the circumstances of the work. (iii) Procedures of analysis of documentation, on sample basis, of payments made with respect to the transactions related to the theme, so as to evaluate the effective evidence of payment for the services provided. (iv) Reading of the documents resulting from the independent investigation, including a report with their conclusions and; (v) Evaluation of disclosures related to this theme in the financial statements. KPMG Auditores Independentes, uma sociedade simples brasileira e firmamembro 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. 11

12 Estimate of construction costs and percentage of completion of work ( POC ) - Parent Company and As mentioned in note 6.e, the Company adopts the method of Percentage of Completion ( POC ) to record income from sales of real estate and land. Due to the relevance of construction costs to be incurred and the high level of judgment involved in the determination of this estimate, used in the calculation of the percentage of completion of the work, base for recognition of income and which may affect the consolidated financial statements and the value of investment recorded under the equity method in the financial statements of the parent company, we considered this subject as significant in our audit How our audit conducted this matter Based on a sample of developments, we analyzed the cost budgets and respective approvals, we also traced, on sample basis, the value of costs incurred to the respective supporting documentation, we evaluated the nature and reasonableness of changes in the cost budget and performed substantive analysis of the reasonableness of the percentage of evolution of the work and evaluated the evolution of costs to be incurred so as to verify unusual movements. We recalculated the recognition of income on the base date considering the management maps of physical evolution. In relation to costs incurred, we verified, on sample basis, the respective supporting documentation. Impairment of accounts receivable and inventories - Parent Company and As mentioned in notes 6.d and 6.i, the Company regularly reviews its portfolio of accounts receivable and inventories in order to estimate the need of recognition of provision for impairment of these assets. The impairment evaluation of accounts receivable and inventories follows internal policies and requires, in view of its nature, the use of judgment and assumptions made by the Company, including analyses of external factors such as overall economic conditions, and internal factors, such as history of payments of the debtor and considerations about collaterals. The Company conducts its analyses of impairment on individual basis in accordance with the specific nature of each asset. Due to the relevance of accounts receivable and inventories and the level of uncertainty in the determination of impairment which may affect the value of these assets in the individual and consolidated financial statements, and the value of investment recorded under the equity method in the financial statements of the parent company, we considered this subject as significant in our audit. How our audit conducted this matter We obtained understanding of the process related to the identification and recording of accounts receivable and the measurement of loss on reduction to recoverable value of inventories. We evaluated the methodologies, indexes and assumptions adopted by JHSF in the calculation of losses (impairment) on individual basis. Based on a sample of inventories, we have inspected the documentations of recent sales made, in order to obtain a comparative price base, and the assumptions supporting the decision of the Company concerning the recoverable value of these assets. We have also tested the reasonableness of the criteria, assumptions and data used by JHSF to measure impairment losses on the portfolio of accounts receivable including the analysis of sufficiency of collaterals. We also assessed the adequacy of disclosures carried out by the Company. Fair value of investment properties (PPIs) - Parent Company and The Company s accounting policy, described in note 6.g, defines that properties for investment are evaluated and stated at their fair value. To determine the fair value, the KPMG Auditores Independentes, uma sociedade simples brasileira e firmamembro 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. 12

13 Company, assisted by outside experts, makes several estimates and assumptions, including assumptions related to the profitability of the PPIs, growth rates, discount rates and cash flow projections. Any change in these estimates may significantly affect the value of these assets and, consequently, the consolidated financial statements and the value of investment recorded under the equity method in the financial statements of the parent company and, in view of the foregoing, we considered this subject as significant in our audit. How our audit conducted this matter With the technical support of our corporate finance specialists, we have valued the reasonableness and consistency of the data and assumptions used for preparing economic appraisal reports of fair value from PPIs, such as growth rates, discount rates and cash flow projections. We have also analyzed the reasonableness of the mathematical calculations made to determine the fair value, as well deferred taxes derived from the temporary difference between the accounting and fiscal balance of the properties. We have also analyzed the fairness of the disclosures made by the Company in compliance with the accounting standards, mainly as to the assumptions and methodology adopted to determine the fair value of the properties for investments. Recoverable value of assets - Parent Company and The consolidated financial statements of JHSF include assets whose realization is supported by estimates of future profitability prepared by the Company based on its judgment and on its business plan. Such estimates are prepared and reviewed internally according to JHSF s governance framework since a reasonable level of judgment is involved. These assets correspond to tax credits (note 6.p), fixed assets (note 6.f) and goodwill on acquisition of investment (note 6.h). Any change in these estimates may significantly affect the value of these assets and, consequently, the consolidated financial statements and the value of investment recorded under the equity method in the financial statements of the parent company and, in view of the foregoing, we considered this subject as significant in our audit. How our audit conducted this matter We got the understanding of process related to the preparation of the cash flow projections prepared by the Company and approved. With the technical support of our corporate finance specialists, we have assessed the reasonableness and consistency of the data and assumptions used by the Company for preparing cash flow projections and taxable income estimates to which the deferred tax assets refer. In relation to fixed assets and goodwill on acquisition of investments, we discussed with the Company the evaluation methods, we analyzed the reports of projections of future results, and verified the reasonableness of other criteria used and for the projections made, we traced the estimates presented for income and cost to the actual values recorded in prior periods. We have also verified the fairness of the Company s disclosures. Other matters Statements of value added The individual and consolidated statements of value added (DVA) for the year ended December 31, 2016, prepared under the responsibility of the Company s management, and presented herein as supplementary information for IFRS purposes, have been subject to audit procedures jointly performed with the audit of the Company's financial statements. In order to form our opinion, we assessed whether those statements are reconciled with KPMG Auditores Independentes, uma sociedade simples brasileira e firmamembro 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. 13

14 the financial statements and accounting records, as applicable, and whether their format and contents are in accordance with criteria determined in the Technical Pronouncement 09 (CPC 09) - Statement of Value Added issued by the Committee for Accounting Pronouncements (CPC). In our opinion, the statements of value added have been fairly prepared, in all material respects, in accordance with the criteria determined by the aforementioned Technical Pronouncement, and are consistent with the overall individual and consolidated financial statements. Other information accompanying the individual and consolidated financial statements and the auditor's report Management is responsible for the other information comprising the management report. Our opinion on the individual and consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the individual and consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the individual and consolidated 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 of this other information, we are required to report that fact. Responsibilities of Management and Those Charged with Governance for the Individual and Financial Statements Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with Brazilian accounting practices and with International Financial Reporting Standards (IFRS), applicable to real estate development entities in Brazil and approved by the Accounting Pronouncements Committee (CPC), the Brazilian Securities Commission (CVM) and the Federal Accounting Council (CFC) 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 individual 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 subsidiaries or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company s and subsidiaries financial reporting process. Auditors Responsibilities for the Audit of the Individual and Financial Statements Our objectives are to obtain reasonable assurance about whether the individual and consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors 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. KPMG Auditores Independentes, uma sociedade simples brasileira e firmamembro 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. 14

15 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 individual 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 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 Company s and its subsidiaries internal control. 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 Company s and its subsidiaries ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the individual 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 auditors report. However, future events or conditions may cause the Company and subsidiaries to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the individual and consolidated 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 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 individual and consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public KPMG Auditores Independentes, uma sociedade simples brasileira e firmamembro 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. 15

16 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. São Paulo, March 29, KPMG Auditores Independentes CRC 2SP014428/O-6 Original report in Portuguese signed by Giuseppe Masi Accountant CRC 1SP176273/O-7 KPMG Auditores Independentes, uma sociedade simples brasileira e firmamembro 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. 16

17 Balance sheet as of December 31, 2016 and December 31, 2015 ASSET (In thousands of Brazilian Reais) Controlling company No. of Note Current Cash and cash equivalents ,710 20,914 69, ,377 Marketable Securities ,780 25,645 38,536 39,588 Accounts receivable 9 284,513 24, , ,730 Property for sale , ,494 Other credits 13 13,591 17,926 41,819 77,884 Taxes and contributions to recover - 27,708 26,540 29,726 30,484 Unrecorded sales expenses ,006 6,269 Dividends receivable 11 13,459 19, Related party credits ,247 Non-current assets available for sale , ,300 Total financial assets 414, ,311 1,162,738 1,881,373 Non-current Accounts receivable 9 48,512 49, , ,240 Deferred Taxes and Contributions ,587 40,882 Property for sale , ,821 Other credits 13 18,827 15,770 36,879 54,094 Related party credits 11 47,101 17,942 42,970 14,743 Advances for future capital increase , , Investments 14 2,238,106 2,889,444 4,502 7,044 Property, plant and equipment 15 21,124 24, , ,465 Investment properties ,326,959 3,357,969 Intangible , ,956 Total non-current asset 2,860,974 3,307,793 3,587,812 4,684,213 Total assets 3,275,735 3,724,104 4,750,550 6,565,587 The explanation notes from the administration are essential parts of the financial statements 17

18 Balance sheet as of December 31, 2016 and December 31, 2015 LIABILITY AND NET EQUITY (In thousands of Brazilian Reais) Controlling company No. of Note Current Suppliers - 5,055 2,183 50,626 97,042 Loans and financing ,203 62, , ,732 Debentures , ,191 84, ,156 Obligations with partners in ventures ,431 21,929 Social, labor and tax obligations - 1,893 1,820 27,507 24,412 Deferred Taxes and Contributions ,533 31,854 Other debits - - 7,195 1,858 14,166 Advance payment from clients / Termination of Right to Use , ,196 Dividends payment - 53,056 53,056 Liabilities directly related to available assets on sale , ,697 Related party debits 11 78,492 84,329 74, ,901 Total current liability 299, , ,449 1,671,085 Non-current Loans and financing , , , ,450 Debentures , , , ,474 Obligations with partners in ventures , ,033 Social, labor and tax obligations ,184 13,127 Deferred Taxes and Contributions , ,164 Other debits - - 3,367 2,621 7,349 Related party debits ,587-21, Provision for judicial demands ,233 26,387 Advance payment from clients / Termination of Right to Use ,990 28,059 Provision for liability at risk in the affiliated company 14 2,568 1, Total non-current liability 773, ,275 1,923,917 2,229,573 Shareholders' equity 23 Capital 914, , , ,183 Capital Reservations 28,244 20,965 28,244 20,965 Profit Reservations 566, , , ,294 Profits to obtain 701,019 1,172, ,604 1,190,021 Treasury shares (414) (414) (414) (414) Fair value adjustment of available titles on sale (7,644) (5,297) (7,644) (5,297) Values recognized in other comprehensive results on the PL related to noncurrent asset available on sale - 138, ,298 Net equity of controlling shareholders 2,202,340 2,647,953 2,205,043 2,645,049 Net equity of non-controlling shareholders ,139 19,879 Total net equity 2,202,340 2,647,953 2,217,183 2,664,929 Total liability and net equity 3,275,735 3,724,104 4,750,550 6,565,587 The explanation notes from the administration are essential parts of the financial statements 18

19 Income statement - Controlling Company Years ended December 31, 2016 and 2015 (In thousands of Brazilian Reais) Controlling company No. of Note Operational revenue and expenses General and administrative expenses 25 (37,993) (30,064) Commercial expenses 26 (728) (1,426) Other revenue and expenses 27 (189,289) 20,000 Income from corporate interests 14 (101,971) 157,432 Operational income (loss) (329,981) 145,942 Financial expenses 28 (158,910) (71,755) Financial income 28 7,457 30,115 Income (loss) before income and social contribution taxes (481,434) 104,302 Income and social contribution taxes ,324 Result of continued operations (394,110) 104,302 Result of discontinued operations 134,917 - Net income (loss) for the period (259,193) 104,302 Net income (loss) attributable to shareholders Continued operations (394,110) 104,302 Discontinued operations 134,917 - Net income per ordinary share - basic in Brazilian Reais (R$) continued operation (0.751) operations for sale ( ) Net income (loss) per ordinary share - diluted in Brazilian Reais (R$) (0.494) continued operation (0.751) operations for sale ( ) Amount of shares at the end of the period 525,000, ,000,000 Amount of shares in treasury at the end of the period 133, ,303 The explanation notes from the administration are essential parts of the financial statements 19

20 Income statement - Years ended December 31, 2016 and 2015 (In thousands of Brazilian Reais) No. of Note Revenue from real estate sales (42,991) 196,785 Revenue from malls and commercial locations 251, ,995 Revenue from hotels and restaurants 176, ,181 Net operating income , ,961 Costs: Real estate sales (26,378) (150,540) Malls and commercial locations (62,569) (63,345) Hotels and restaurants (142,172) (145,155) 24 (231,119) (359,040) Gross profit , ,921 Operational revenue and expenses General and administrative expenses 25 (94,014) (81,613) Commercial expenses 26 (19,316) (25,310) Other operating expenses 27 (231,676) (20,346) Fair value of investment properties 16 35, ,861 Income from corporate interests - 2,710 (217) Operational income (loss) (153,273) 458,296 Financial expenses 28 (308,728) (270,946) Financial income 28 22,409 59,026 Income (loss) before income and social contribution taxes (439,592) 246,377 Income and social contribution taxes 54,098 (109,939) Currents (6,273) (14,157) Deferred 60,371 (95,782) Income (loss) of continued operations (385,494) 136,439 Income of operations for sale 134,917 (26,697) Net income (loss) for the period (250,576) 109,742 Net income (loss) attributed to controlling shareholders of continued operation (253,585) 135,078 Net income attributed to non-controlling shareholders of continued operation 23 3,009 1,361 Net income (loss) attributed to controlling shareholders of operations on sale 134,917 (26,697) Net income attributed to non-controlling shareholders of operations on sale - - The explanation notes from the administration are essential parts of the financial statements 20

21 Income statement - comprehensive results Years ended December 31, 2016 and 2015 (In thousands of Brazilian Reais) Controlling company Net income (loss) of the period of continued operations (394,110) 104,302 (385,495) 136,439 Net income (loss) of the period of discontinued operations 134, ,917 (26,697) Net income (loss) for the period (259,193) 104,302 (250,578) 109,742 Net income (loss) attributed to controlling shareholders (259,193) 104,302 (253,585) 109,789 Net income (loss) attributed to non-controlling shareholders - - 3,009 (47) Equity evaluation adjustments (259,193) 104,302 (250,576) 109,742 Adjustments of balance conversion of entities classified as non-current assets available for sale (7,293) 72,744 (7,293) 72,745 Adjustments by fair value of available titles on sale (2,347) 1,229 (2,347) 1,229 Realization of balance sheet conversion adjustments of non-foreign entities sold (131,005) (131,005) Total comprehensive income (loss) (399,838) 178,276 (391,221) 183,716 Comprehensive income (loss) attributed to controlling shareholders (399,838) 178,276 (394,230) 182,355 Comprehensive income attributed to non-controlling shareholders - - 3,009 1,361 The explanation notes from the administration are essential parts of the financial statements 21

22 Cash flow statements Years ended December 31, 2016 and 2015 (In thousands of Brazilian Reais) Controlling company OF OPERATIONAL ACTIVITIES Income (loss) before income taxes, social contribution taxes and non-controlling shareholders (481,434) 104,302 (439,593) 246,376 Expenses (revenue) not affecting the cash flow: Depreciation and amortization of property and intangible assets 4,660 3,324 14,594 17,390 Equity pick-up 101,971 (157,432) (2,710) 217 Interests, monetary variations on loans 125,419 66, , ,993 Accumulated profits (131,005) - (131,005) - Adjustments to present value (1,814) Commercial expenses - stand amortization - - 1,801 1,743 Estimated loss for doubtful credits 7,379-21,171 30,723 Provisions for contingency (134) 19 (3,154) 509 Statutory provisions (Stock Options) 7,279 4,788 7,279 - Fair value of investment properties - - (35,578) (313,861) Income of operations for sale 134, ,917 (26,697) (230,948) 21,429 (184,523) 189,579 Variation in assets and current and non-current liabilities: Decrease (increase) in marketable securities (1,295) 33,605 (1,295) 33,605 Decrease (increase) in accounts receivable (273,744) (27,935) (107,968) 56,986 Decrease (increase) in real estate to be commercialized ,678 (81,727) Decrease (increase) in expenses for sales to be obtained Decrease (increase) in related parties 100,982 58,338 (47,182) 114,871 Decrease (increase) in other assets 110 (15,113) 52,411 21,600 Increase (decrease) in advance payments from clients ,668 (27,580) Increase (decrease) in taxes and contributions to collect Increase (decrease) in other liabilities (20,396) (388) (105,477) (16,452) Cash and equivalents stemming from operational activities: (425,290) 69,936 (346,424) 291,848 Paid income and social contribution taxes - - (7,521) (8,699) Cash and net equivalents stemming from operational activities: (425,290) 69,936 (353,945) 283,149 INVESTMENT ACTIVITIES: Acquisition of assets of the property and property for investment (7,880) (7,732) (130,375) (266,400) Sale of property, plant and equipment and investment property 413, ,296 - Advance payment for eventual capital increase (39,473) (306,585) - - Receipt of dividends - 3, Sale (acquisition) of Investment in corporate interests 377,441 (30,255) 491,456 (2,500) Cash and net equivalents applied to investment activities: 743,117 (340,643) 786,377 (268,900) FINANCING ACTIVITIES: Entry of new loans and financing 416, , , ,149 Payment of debentures (238,105) (166,486) (307,433) (229,113) Payment of loans and financing (455,488) (321,709) (798,980) (911,978) Distribution of dividends Increase (decrease) of Capital - 192, ,134 Cash and net equivalents stemming from (applied to) financing activities: (277,030) 167,106 (514,153) (210,808) Effect of exchange variation on cash and cash equivalents ,585 Increase (decrease) in cash and equivalents: 40,796 (103,603) (81,724) (153,974) At the end of the period 61,710 20,914 69, ,377 In the beginning of the period 20, , , ,351 Increase (decrease) in cash and equivalents: 40,796 (103,603) (81,724) (153,974) The explanation notes are essential parts of the financial statements 22