Risk Factors

a) Of the Company

Our results strongly depend on the real estate launch market.

Currently, our work is focused on the real estate launch market. In the first half of 2015, 75.1% of our sales came from the launch market. The launch market is subject to the fluctuations in the real estate development business, as well as approvals of construction works by competent bodies and changes in building and zoning regulations. Any restrictions related to credit and macroeconomic factors such as higher unemployment rates will also strongly impact property sales by developers and, consequently, by us. As a result, the occurrence of any of these factors may adversely and materially affect our performance on the real estate launch market and our financial situation.

Our acquisition strategy involves risks related to the integration of the acquired businesses.

The operational integration process may lead to operational, accounting, commercial, financial and contractual difficulties, including, but not limited to:

  • difficulty in maintaining a good relationship between our Company and the acquired companies;
  • difficulty in integrating operations, accounting, personnel, management information systems, research and development efforts, marketing, logistics, sales and support, as well as problems in assimilating technologies, businesses and acquired operations;
  • potential loss of key employees from the acquired business; and
  • unplanned additional costs related to the integration operation.

Additionally, the effort with the integration of companies, services or products acquired may demand a significant portion of our administrative, operational and financial resources, which could adversely affect our currently existing activities.

We cannot guarantee that this strategy will be successful and, even if it is, that our next acquisitions will also be successful. As a result of any of the factors mentioned above, we may not be able to successfully implement our strategy for integrating the acquired companies or to obtain the expected cost reduction levels related to these acquisitions, which could adversely affect expected operating results.

We may not be able to maintain or improve our growth history.

We may not be able to increase or maintain growth levels similar to those achieved in the past, and our operating results in recent periods or fiscal years are not a guarantee of future performance. Our internal growth demanded, and we expect it will continue to demand, considerable adjustments to our businesses, especially regarding internal controls and our administrative, technical, operational and financial resources. We intend to continue to expand our activities in the markets where we operate, as well as in other regions not yet explored, which can result in the need to further adapt our resources and substantially depend on our ability to implement and manage the expansion of these resources. If we do not manage to grow and maintain a satisfactory compound annual growth rate or even quickly and adequately respond to our expansion, our financial and operating results may be adversely affected.

Changes in the management of our subsidiaries or failure to attract and retain new executives can have an adverse effect on our Company.

Our business model requires the administrators of our subsidiaries to have profound knowledge of the local real estate sector and solid relationship with developer-clients, as well as agility and accuracy in decisions, motivation and sales force management. We cannot guarantee that we will succeed in attracting and retaining qualified personnel to compose our subsidiaries’ management. The eventual loss of our subsidiaries’ top executives and the inability to attract new professionals with the same competence may cause a significant adverse effect on our operating results.

We may assume eventual non-identified contingencies at the time of the acquisitions.

When developing our strategy, we pursue the expansion of our business through acquisitions. As a result, we might discover previously unknown contingencies in acquired companies, for which we may be held accountable, as successors. If we incur in costs and expenses associated with these contingencies and the sellers’ guarantees are not sufficient to cover them, our operating results and financial situation may be negatively affected.

Our partnership with Bradesco for mortgage origination may not have the expected success.

In October 2010, we signed a mortgage origination partnership with Bradesco, through which we offer the bank‘s real estate financing to buyers of properties in the resale market. We will receive a commission for each deal generated. However, the success of this partnership depends on several factors, such as the bank‘s approval for granting the financing, competitive financing conditions and a favorable economic scenario. Thus, we cannot guarantee that the partnership will achieve the expected success.

We may be harmed due to the inappropriate conduct of independent brokers with whom we work.

We do not have direct control over the actions of independent brokers hired by us, in view of the non-exclusivity and independent relationship of said brokers. As a result, it is possible that some of these brokers, without our knowledge, present a conduct not in line with the standards set by the Company and the Federal Council of Realtors (COFECI), such as providing inaccurate information about the property being sold, the promise of future property appreciation and/or profitability. Such conduct, if adopted by our independent brokers, may harm our image and reputation on the market, under penalty of the Company being subject to administrative claims before the regional councils for real estate brokers (CRECI), judicial proceedings, as well as making us liable for acts performed by independent brokers who we work with that are contrary to our interests, may adversely affect our operations.

b) Of the Company’s direct or indirect controlling shareholder or control group

The Company does not have direct or indirect controlling shareholders, or control group.

The lack of a single controlling shareholder or group of controlling shareholders may make the Company susceptible to new alliances of shareholders, conflicts between shareholders and other events resulting from the absence of a controlling shareholder or established group control.

Provisions of our Bylaws related to protection against attempts to acquire a substantial batch of our shares in the free float may hinder or stop operations that may be of interest to investors.

Our Bylaws have provisions to prevent the concentration of our shares in a group of investors in order to promote a more dispersed shareholding base. One of those provisions requires any acquiring shareholder who becomes a holder of shares or rights to shares representing 20% or more of the total shares issued by our Company (excluding involuntary increases of interest resulting from the cancellation of treasury shares or the reduction of our capital stock with cancellation of shares), to carry out a public tender offering of all of our actions within 60 days as of the acquisition or event which resulted in the ownership of shares in this amount, at the price established in our Bylaws.

This provision can have the effect of hindering or preventing attempts to acquire our Company and may discourage, delay or prevent the merger or acquisition of our Company, including operations in which the investor could receive a premium over the market value of his shares. Any changes to our Bylaws that limit or change shareholders’ right to carry out said tender offer or exclude that provision from our Bylaws, as well as reduce the price established will depend on the approval of shareholders representing at least 50% of our capital stock at a shareholders’ meeting. This mechanism, although included in the Bylaws of other companies currently listed on the BM&FBovespa, was not yet tested in practice and it is likely to be legally questioned, in whole or in part, when of its effective implementation.

c) Of the Company’s shareholders

The possibility of changing the mechanisms the protect the dispersion of the shareholding base provided for in our Bylaws may make us susceptible to hostile acquisitions.

Our Bylaws have provisions with effect of: (i) hindering attempts to acquire the Company without any negotiation with the current controlling shareholders; and (ii) avoiding the concentration of our shares by a small group of investors, in order to promote a more dispersed shareholding base.

The elimination from our Bylaws of said mechanisms may make us susceptible to hostile acquisitions or to the possibility of not having a share dispersion that provides the liquidity and trading volume expected by our shareholders. Any attempt of a hostile acquisition of our control may adversely affect our businesses and operating results.

The relative volatility and lack of liquidity of the Brazilian securities market may significantly limit the ability of investors to sell shares at the desired price and time.

Investment in securities traded in emerging markets, such as Brazil, often involves greater risk compared to other developed international markets. The Brazilian securities market is substantially smaller, less liquid, more concentrated and can be more volatile than the larger international securities markets. These market characteristics may substantially limit the capacity of our shareholders to sell their common shares at the desired price and time. As a result, this could represent an adverse impact on the market price of our shares.

We may need additional capital in the future, through the issue of securities, which may result in a dilution of investors‘ interest.

We may need additional resources and we can choose to get them through a public or private placement of debt securities or shares or other securities convertible into shares. However, in the case public or private financing are not available, or if the shareholders decide so, said additional resources can be obtained through a capital increase, which may result in the dilution of investors’ interest.

We may not pay dividends or interest on equity to our shareholders.

Pursuant to the Company‘s Bylaws, we must pay 25% of our annual net income to shareholders as dividends or interest on equity, calculated and adjusted in accordance with the Brazilian Corporation Law. The net income can be capitalized, used to offset losses or retained pursuant to Brazilian Corporation Law and may not be available for the payment of dividends or interest on equity. In addition, the Brazilian Corporation Law allows a publicly-held company, like us, to suspend the mandatory distribution of dividends in a given fiscal year, if the Board of Directors informs the Annual Shareholders’ Meeting that the distribution would be incompatible with the Company’s financial situation. If any of these events occurs, our shareholders may not receive dividends or interest on equity.

The interests of our Administrators may become overly bound to the value of our shares, if the Company grants stock options under our Stock Option Plan.

On October 22, 2010, the Company’s shareholders approved The Stock Option Plan at an Extraordinary Shareholders’ Meeting, still pending implementation through the respective programs. Until the date of this Reference Form, the Board of Directors had not approved any Program linked to the Stock Option Plan. There is no way to ensure that the future granting of such options cannot cause an excessive binding to the price of our shares, which can negatively impact our businesses, due to the interests of our Administrators not being aligned to the Company’s long-term interests.

d) Of the Company’s subsidiaries and affiliated companies

The risks related to our subsidiaries and affiliated companies are the same as those of the Company.

e) Of the Company’s suppliers

Due to the nature of our business, provision of real estate consulting and brokerage services, we did not identify any risks related to Company suppliers that may affect our business.

f) Of the Company’s clients

We have contracts signed with some of our developer-clients related to our real estate consulting and brokerage businesses which, in the event of a legal dispute, may adversely affect us.

In the market of real estate brokerage it is common to have contracts which are not written. In this sense, we cannot enter into written contracts with some of our developer-clients related to real estate brokerage and consulting businesses, as well as related to our Seller-Clients. As a result, we may have difficulties in executing these contracts in court if said clients cannot or do not wish to continue working with us. This can result in loss of revenues associated with certain real estate launch projects, in addition to affecting our reputation in the market. Said factors may adversely affect our operating results.

g) Of the economic sectors where the Company operates

As they are directly related to the construction and real estate development market, real estate brokerage activities are exposed to risks associated with this market, which may adversely affect our Company.

Real estate brokerage activities are directly related to the development and construction market. In addition to the risks that affect specifically the sales brokerage sector, our activities can be adversely affected by risks typical to the real estate development sector, such as:

  • changes in Brazil’s current economic scenario, which may jeopardize the growth of the real estate sector as a whole, due to, among other factors, the economic slowdown, scarcity of financing to developers and builders, and loans to buyers, higher interest rates, inflation, fluctuations of the Brazilian Real and political instability;
  • the degree of interest of buyers for a real estate launch or units’ sale price may be below expected and, therefore, result in a significant reduction in the overall sales volume of the real estate project launched, reducing the remuneration expected by our Company;
  • changes in the conditions of the local or regional real estate market, such as the reduction in the demand for properties, may reduce the average price of the units sold by us;
  • our inability to sell real estate launches of developer-clients for which we were hired;
  • delays in the approval of the works by competent authorities or due to changes in local legislation establishing new regulations related to buildings and zoning, the environment and protection of the historical, cultural, artistic, tourist and scenic heritage, as well as the reduction in the number of launches by our developer-clients may affect our image and reputation; and
  • the disruption in the material and construction equipment supply market or the significant increase in costs related thereto may paralyze the works and affect our image and reputation.

We compete with real estate brokers in general and real estate brokers linked to developers.

The real estate brokerage sector in Brazil is highly competitive and dispersed, particularly in the resale market, and there is no major barriers restricting the entry of new competitors on the market. In addition, some real estate developers are competing with us selling their projects, usually through brokers who belong to their economic group, with a sales structure of brokers focused exclusively on selling their projects. In addition, our employees, including some of our executive officers and other qualified professionals, may start new companies or work for existing companies which operate in the real estate brokerage market, or for developers that have or will have their own sales operations, therefore, competing with us. Other companies, including foreign companies, may begin to operate actively in the real estate brokerage market in Brazil in the coming years, further increasing competition.

As a result, if we are not able to successfully respond to said competition, we may suffer a material adverse impact on our financial situation and operating results.

The shortage of credit and/or the increase in interest rates may reduce the demand for real estate residential or commercial units, which may negatively affect the real estate market and consequently our business.

Buyers of our units generally rely on loans to finance their acquisitions. The scarcity of resources in the market for obtaining financing, the change in current credit granting policies and/or the increase in interest rates may adversely affect the ability or intent of potential buyers to acquire our units. Most of the financing obtained by consumers to purchase real estate properties is through the Brazilian housing finance system ("SFH"), which, in turn, is financed with funds from savings deposits. In addition, the National Monetary Council ("CMN") may change the amount of funds that banks should make available to mortgages. If the CMN restricts the amount of funds available in the system for financing the acquisition of real estate properties, or in the case of an increase in interest rates, demand for our real estate projects may decrease, which may significantly and adversely affect our activities, financial situation and operating results.

Additionally, if the economy becomes recessive, we can once again expect a reduction in the velocity of sales of units and an increase in default levels, which may also adversely affect the Company.

h) Of the regulation of the sectors where the Company operates

The change in interpretation regarding the nature of the employment relationship of independent brokers that collaborate with our activities may adversely affect our Company.

Our brokers are contracted as independent workers without employment ties as authorized by current legislation. In accordance with case law precedents already established by Brazilian courts, said independent relationship may be considered an employment relationship. If this understanding becomes predominant in the future, we may be subject to a significant increase in the number of lawsuits aimed at recognizing an eventual employment tie by said independent brokers and, consequently, an increase in our costs, causing a material adverse effect on our financial situation and operating results.

i) Of the foreign countries where the Company operates:

The Company has no operations in other countries besides Brazil.