Individual and Consolidated Interim Financial Information and Accountant s Report on Review of Interim Financial Information. As at September 30, 2017

(1)

REL-2287i/2017

Rossi Residencial S.A. and Subsidiaries

(Free translation from the original issued in Portuguese. In the event

of discrepancies, the Portuguese language version should prevail.)

Individual and Consolidated Interim Financial

Information and Accountant’s Report on Review

of Interim Financial Information

(2)

Page

Accountant’s report on review of interim financial information

3 Interim financial information

6

(3)

Grant Thornton Auditores Independentes

Av. Engenheiro Luis Carlos Berrini, 105

12° andar

Edifício Berrini One | Itaim Bibi

São Paulo | SP | Brasil

T +55 11 3886.5100

www.grantthornton.com.br

Accountant’s report on review of the interim

financial information

(Free translation from the original issued in Portuguese. In the event of discrepancies, the Portuguese

language version should prevail. See Note 30 to the interim financial information.)

To the

Shareholders, Directors, and Management of

Rossi Residencial S.A.

São Paulo, SP

Introduction

We have reviewed the individual and consolidated interim financial information of Rossi

Residencial S.A. (“Company”), identified as Parent and Consolidated, respectively, included in the

Interim Financial Information Form (ITR) for the quarter ended September 30, 2017, which

comprises the balance sheet as at September 30, 2017 and the related statement of profit and loss,

statement of comprehensive income for the three- and nine-month periods then ended, statement

of changes in equity, and statement of cash flows for the nine-month periods then ended,

including a summary of significant accounting policies and other explanatory notes.

Management is responsible for the preparation of the individual interim financial information in

accordance with technical pronouncement CPC 21 (R1) - Interim Financial Reporting and the

consolidated interim financial information in accordance with technical pronouncement CPC 21

(R1) and IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards

Board – IASB, which takes into consideration the technical instruction OCPC 04 on the

application of technical interpretation ICPC 02 to real estate development entities in Brazil, issued

by the Accounting Pronouncements Committee (CPC) and approved by the Brazilian Securities

Commission (CVM) and the Federal Accounting Council (CFC), as well as for the presentation of

such information in accordance with the standards issued by the CVM applicable to the

preparation of Interim Financial Information (ITR). Our responsibility is to express an opinion on

this interim financial information based on our review.

Scope of review

(4)

Conclusion on the individual and consolidated interim financial information

prepared in accordance with CPC 21 (R1)

Based on our review, nothing has come to our attention that causes us to believe that the

accompanying individual and consolidated interim financial information included in the interim

financial information referred to above is not prepared, in all material respects, in accordance with

technical pronouncement CPC 21 (R1), applicable to the preparation of the Interim Financial

Information (ITR), and presented in accordance with the standards issued by the CVM.

Conclusion on the consolidated interim financial information prepared in

accordance with IAS 34, which considers technical instruction OCPC 04 on the

application of technical interpretation ICPC 02 to real estate development

entities in Brazil, issued by the CPC and approved by the CVM and the CFC

Based on our review, nothing has come to our attention that causes us to believe that the

consolidated interim financial information included in the ITR referred to above is not prepared, in

all material respects, in accordance with IAS 34, which considers OCPC 04 on the application of

technical interpretation ICPC 02 to real estate development entities in Brazil, issued by the CPC

and approved by the CVM and the CFC, applicable to the preparation of the Interim Financial

Information (ITR), and presented in accordance with the standards issued by CVM.

Significant uncertainty as to the ability to continue as a going concern

We draw attention to note 1 to the interim financial information, which states that the Company

incurred loss of R$493,245 thousand during the period ended September 30, 2017. In addition, as

of the same date, the Company’s accumulated losses amounted to R$2,363,230 thousand. As

discussed in note 1, these events or conditions, together with other matters described in note 1,

significantly impact the Company’s financial flow, requiring the Company to renegotiate its

corporate debts as a condition to balance and adequate its financial flow to its current reality. If

these actions and the strategic plan are unsuccessful, these conditions indicate the existence of

relevant uncertainty that may cast significant doubt as to the Company’s ability to continue as a

going concern. Our conclusion is not qualified regarding this matter.

Emphasis of matter

Revenue recognition

(5)

Other matters

Interim statements of value added

We have also reviewed the individual and consolidated statements of value added (“DVA”) for the

nine-month period ended September 30, 2017, prepared under the responsibility of the Company’s

management, the presentation of which is required by the standards issued by the Brazilian

Securities Commission (CVM) applicable to the preparation of Interim Financial Information

(ITR), and is considered supplemental information for IFRS, which does not require the

presentation of a DVA. This information was subject to the same review procedures described

above and, based on our review, nothing has come to our attention that causes us to believe that

they are not prepared, in all material respects, in accordance with the individual and consolidated

interim financial information taken as a whole.

(6)

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

(Free translation from the original issued in Portuguese. In the event of discrepancies, the Portuguese language version should prevail.)

BALANCE SHEETS AS AT DECEMBER 30, 2017

(In thousands of Brazilian reais - R$)

ASSETS

Note

09/30/2017

12/31/2016

09/30/2017

12/31/2016

CURRENT ASSETS

Cash and cash equivalents

3 4,277

3,439

33,125

45,883

Securities

4 3,222

8,829

23,711

16,585

Trade receivables

5 137,392

159,017

780,948

944,394

Properties for sale

6 46,563

59,981

663,982

848,486

Other receivables

8 149,538

136,337

116,133

142,598

Total current assets

340,992

367,603

1,617,899

1,997,946

NONCURRENT ASSETS

Trade receivables

5 26,899

39,872

123,067

130,510

Properties for sale

6 11,574

9,255

502,690

529,076

Escrow deposits

16 74,748

59,947

103,251

81,907

Related parties

18 1,973,989

2,044,678

185,763

278,080

Advances to business partners

7 506,095

524,406

473,187

519,710

Investments

9 3,248,453

3,383,962

1,122,567

1,194,984

Property, plant and equipment

10 11,504

14,129

18,228

22,954

Intangible assets

11 51,726

61,882

52,023

62,197

Total noncurrent assets

5,904,988

6,138,131

2,580,776

2,819,418

TOTAL ASSETS

6,245,980

6,505,734

4,198,675

4,817,364

The accompanying notes are an integral part of this interim financial information.

(7)

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

(Free translation from the original issued in Portuguese. In the event of discrepancies, the Portuguese language version should prevail.)

BALANCE SHEETS AS AT DECEMBER 30, 2017

(In thousands of Brazilian reais - R$)

LIABILITIES

Note

09/30/2017

12/31/2016

09/30/2017

12/31/2016

CURRENT LIABILITIES

Borrowings and financing

12 414,031

434,362

806,530

1,016,428

Trade payables

21,802

17,965

54,166

47,249

Payables for purchases of land

13a

-

120,162

150,325

Payroll and related taxes

3,775

2,277

8,219

8,515

Taxes and contributions payable

4,641

5,223

22,549

21,411

Profit sharing - Management and employees

1,798

2,598

1,798

2,598

Advances from customers

13b

141

588 192,877

213,552

Related parties

18 2,445,885

2,482,256

845,894

953,297

Deferred taxes and contributions

17a

1,536

1,081

34,714

41,297

Other payables

15 132,772

112,526

245,379

216,760

Total current liabilities

3,026,381

3,058,876

2,332,288

2,671,432

NONCURRENT LIABILITIES

Borrowings and financing

12 980,150

842,773

1,259,982

1,025,953

Payables for purchases of land

13a

-

5,125

1,155

Taxes and contributions payable

16 21,356

21,356

31,061

25,554

Provisions for risks

16 26,125

15,680

89,851

86,855

Provisions for construction warranty

1,948

2,044

16,560

20,073

Deferred taxes and contributions

17a

292

271 31,715

39,119

Allow ances for investment losses

14 1,918,112

1,781,732

114,330

101,527

Other payables

15 36,928

68,367

77,346

112,121

Total noncurrent liabilities

2,984,911

2,732,223

1,625,970

1,412,357

EQUITY

Capital

24a

2,611,390

Treasury shares

24b

(83,313)

Capital reserve

24c

69,841

69,134

69,841

69,134

Accumulated losses

(2,363,230)

(1,882,576)

(2,363,230)

(1,882,576)

Profit (loss) for the period

-

-Total equity atributtable to Company´s owners

234,688

714,635

234,688

714,635

Noncontrolling interests

-

5,729

18,940

Total equity

234,688

714,635

240,417

733,575

TOTAL LIABILITIES AND EQUITY

6,245,980

6,505,734

4,198,675

4,817,364

The accompanying notes are an integral part of this interim financial information.

(8)

(Free translation from the original issued in Portuguese. In the event of discrepancies, the Portuguese language version should prevail.)

STATEMENT OF PROFIT AND LOSS

FOR THE PERIOD ENDED SEPTEMBER 30, 2017

(In thousands of Brazilian reais - R$, except earnings [loss] per share)

07/01/2017 to

09/30/2017

01/01/2017 to

09/30/2017

07/01/2016 to

09/30/2016

01/01/2016 to

09/30/2016

07/01/2017 to

09/30/2017

01/01/2017 to

09/30/2017

07/01/2016 to

09/30/2016

01/01/2016

to

09/30/2016

NET REVENUE

19 2,525

9,374

5,937

23,461

42,892

249,852

139,535

367,387

COST OF PROPERTIES SOLD AND SERVICES PROVIDED

20

108 (12,399)

(463)

(2,259)

(91,931)

(320,081)

(139,427)

(365,026)

GROSS PROFIT

2,633

(3,025)

5,474

21,202

(49,039)

(70,229)

108 2,361

INCOME (EXPENSES)

Administrative expenses

21 a

(11,056)

(34,341)

(11,861)

(43,120)

(14,895)

(44,833)

(17,230)

(60,064)

Selling expenses

21 b

1,740

(1,612)

(3,751)

(10,466)

(6,730)

(29,423)

(19,351)

(57,098)

Management fees

18b

(1,216)

(3,580)

(1,162)

(2,867)

(1,216)

(3,580)

(1,162)

(2,867)

Depreciation and amortization

(4,128)

(12,548)

(4,107)

(13,114)

(3,188)

(13,374)

(4,801)

(15,153)

Share of profit (loss) of investees

(84,865)

(219,041)

(86,423)

(203,885)

(21,057)

(52,882)

(31,712)

(25,574)

Other operating income (expenses), net

21c

(16,690)

(57,977)

(8,983)

(37,465)

(27,327)

(102,511)

(32,352)

(118,229)

PROFIT (LOSS) FROM OPERATIONS BEFORE FNANCE INCOME (COSTS)

(113,582)

(332,124)

(110,813)

(289,715)

(123,452)

(316,832)

(106,500)

(276,624)

FINANCE INCOME

22 1,438

5,991

1,601

7,637

3,949

16,433

7,207

30,209

FINANCE COSTS

22 (43,851)

(154,521)

(51,112)

(145,369)

(51,829)

(198,715)

(69,550)

(186,512)

PROFIT (LOSS) BEFORE TAXES

(155,995)

(480,654)

(160,324)

(427,447)

(171,332)

(499,114)

(168,843)

(432,927)

INCOME TAX AND SOCIAL CONTRIBUTION

Current

17d

-

2,819

(3,475)

(4,503)

(10,615)

Deferred

17d

-

5,431

9,344

4,264

7,474

PROFIT (LOSS) FOR THE PERIOD

(155,995)

(480,654)

(160,324)

(427,447)

(163,082)

(493,245)

(169,082)

(436,068)

Profit (loss) attributable to:

Company's owners

-

(155,995)

(480,654)

(160,324)

(427,447)

Noncontrolling interests

-

(7,087)

(12,591)

(8,758)

(8,621)

PROFIT (LOSS) PER SHARE ATTRIBUTABLE TO COMPANY'S OWNERS

(EXPRESSED IN R$ PER SHARE)

Basic

24d

(9.0943)

(28.0216)

(9.3467)

(24.9197)

Diluted

24d

(9.0943)

(28.0216)

(9.3467)

(24.9197)

Note

Parent

Consolidated

(9)

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

(Free translation from the original issued in Portuguese. In the event of discrepancies, the Portuguese language version should prevail.)

STATEMENT OF COMPREHENSIVE LOSS

FOR THE PERIOD ENDED SEPTEMBER 30, 2017

(In thousands of Brazilian reais - R$)

07/01/2017 to

09/30/2017

01/01/2017 to

09/30/2017

07/01/2016 to

09/30/2016

01/01/2016 to

09/30/2016

07/01/2017 to

09/30/2017

01/01/2017 to

09/30/2017

07/01/2016 to

09/30/2016

01/01/2016 to

09/30/2016

LOSS FOR THE PERIOD

(155,995)

(480,654)

(160,324)

(427,447)

(163,082)

(493,245)

(169,082)

(436,068)

Other comprehensive income

-

-COMPREHENSIVE LOSS FOR THE PERIOD

(155,995)

(480,654)

(160,324)

(427,447)

(163,082)

(493,245)

(169,082)

(436,068)

Comprehensive loss attributable to:

Company's owners

-

(155,995)

(480,654)

(160,324)

(427,447)

Noncontrolling interests

-

(7,087)

(12,591)

(8,758)

(8,621)

COMPREHENSIVE LOSS ATTRIBUTABLE TO

COMPANY'S OWNERS (EXPRESSED IN R$ PER SHARE)

Basic

24d

(9.0943)

(28.0216) (9.347)

(24.9197)

Diluted

_24d

_(9.0943)

_{(28.0216) (9.347)}

_(24.9197)

Note

Parent

Consolidated

(10)

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

(Free translation from the original issued in Portuguese. In the event of discrepancies, the Portuguese language version should prevail.)

STATEMENTS OF CHANGES IN EQUITY

FOR THE PERIOD ENDED SEPTEMBER 30, 2017

(In thousands of Brazilian reais - R$)

Capital

Treasury

shares

Capital

reserve

Accumulated

losses

Equity

Noncontrolling

interests

Consolidated

equity

BALANCES AT DECEMBER 31, 2015

2,611,390

(83,313)

66,197

(1,368,203)

1,226,071

42,724

1,268,795

Capital increase by noncontrolling shareholders

-

8,420

Share-based payment

-

2,810

-

2,810

-

2,810

Profit (loss) for the period

-

(427,447)

(8,621)

(436,068)

BALANCES AS AT SEPTEMBER 30, 2016

2,611,390

(83,313)

69,007

(1,795,650)

801,434

42,523

843,957

BALANCES AS AT DECEMBER 31, 2016

2,611,390

(83,313)

69,134

(1,882,576)

714,635

18,940

733,575

Capital reduction by noncontrolling shareholders

-

(620)

Share-based payment

-

707 -

707 Loss for the period

-

(480,654)

(12,591)

(493,245)

BALANCES AS AT SEPTEMBER 30, 2017

2,611,390

(83,313)

69,841

(2,363,230)

234,688

5,729

240,417

(11)

(Free translation from the original issued in Portuguese. In the event of discrepancies, the Portuguese language version should prevail.)

STATEMENTS OF VALUE ADDED

FOR THE PERIOD ENDED SEPTEMBER 30, 2017

(In thousands of Brazilian reais - R$)

09/30/2017

09/30/2016

09/30/2017

09/30/2016

REVENUES

Properties sold and services provided

9,929

25,634

248,950

379,578

Other income (expenses)

(6,359)

(11,577)

(23,350)

(30,978)

Recognition (reversal) of allow ance for doubtful debts

1,864

(2,858)

1,162

(6,643)

5,434

11,199

226,762

341,957

INPUTS ACQUIRED FROM THIRD PARTIES

Costs of properties sold

(12,383)

(1,960)

(241,810)

(252,942)

Materials, electric pow er, outside parties and other

(56,583)

(47,983)

(126,272)

(145,093)

(68,966) (49,943)

(368,082) (398,035)

GROSS VALUE ADDED

(63,532) (38,744)

(141,320) (56,078)

RETENTIONS

Depreciation and amortization

(12,581)

(13,114)

(12,707)

(15,153)

Goodw ill realization

-

(5,282)

-

(5,282)

Wealth created by the entity

(76,113)

(57,140)

(154,027)

(76,513)

WEALTH CREATED IN TRANSFER

Share of profit (loss) of investees

(219,041)

(203,885)

(52,896)

(25,574)

Finance income

6,381

7,992

17,232

31,487

Other items

(12,132)

-

(12,118)

(224,792)

(195,893)

(47,782)

5,913

TOTAL WEALTH FOR DISTRIBUTION

(300,905)

(253,033)

(201,809)

(70,600)

Wealth distributed

Personnel expenses

Salaries and w ages

13,739

12,313

19,895

47,495

Benefits

2,435

4,518

5,969

8,940

Severance Pay Fund (FGTS)

1,623

2,183

5,972

8,210

17,797

19,014

31,836

64,645

Taxes and contributions

Federal

7,132

4,451

2,975

20,168

State

80

368

122

427 Municipal

828 2,437

7,193

8,757

8,040

7,256

10,290

29,352

Lenders and lessors

Interest expense and banking fees

151,451

144,146

245,596

261,142

Rentals

2,461

3,998

3,714

10,329

153,912

148,144

249,310

271,471

Shareholders

Equity capital

(Losses incurred) retained earnings

(480,654)

(427,447)

(480,654)

(427,447)

(480,654)

(427,447)

(480,654)

(427,447)

Noncontrolling interests in retained earnings

(12,591)

(8,621)

(300,905)

(253,033)

(201,809)

(70,600)

The accompanying notes are an integral part of this interim financial information.

(12)

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

(Free translation from the original issued in Portuguese. In the event of discrepancies, the Portuguese language version should prevail.)

STATEMENT OF CASH FLOWS

FOR THE PERIOD SEPTEMBER 30, 2017

(In thousands of Brazilian reais - R$)

09/30/2017

09/30/2016

09/30/2017

09/30/2016

CASH FLOWS FROM OPERATING ACTIVITIES

(Loss) Profit before income tax and social contribution

(480,654)

(427,447)

(499,114)

(432,927)

Adjustments not affecting cash:

Depreciation and amortization

12,548

13,114

13,374

15,153

Allowance for doubtful debts

(1,864)

2,858

(822)

6,653

Adjustment to present value

-

(178)

3,038

(3,235)

Provisions for risks

10,445

5,877

2,996

21,203

Write-off of escrow deposits

12,100

12,797

14,131

16,029

Provision for construction warranty

(96)

-

(2,788)

(6,113)

Share-based payment

707 2,810

Accrued profit sharing

-

(144)

-

(144)

Share of profit (loss) of investees

219,041

203,885

52,882

25,574

Gain on sale of investments

(2,376)

892 (2,577)

1,903

Goodwill on acquisition of investments / Intangible assets

12,135

5,282

4,030

5,282

Fixed and intangible assets disposed of

233

564 1,525

3,166

Deferred taxes and contributions

476 (2,011)

(4,643)

(9,911)

Interest and finance charges, net

134,110

139,650

181,505

207,750

(83,195)

(42,051)

(235,756)

(146,807)

Changes in operating assets and liabilities:

Decrease (increase) in trade receivables

36,725

4,569

171,510

147,708

Decrease (increase) in properties for sale

11,099

(22,419)

208,054

(60,093)

Decrease (increase) in other receivables, net of

Items classified in liabilities

15,233

558 10,853

36,020

Decrease (increase) in other assets

(26,901)

(31,299)

(35,475)

(37,711)

Increase (decrease) in payables for purchases of land

-

(28,017)

(47,060)

Increase (decrease) in taxes and contributions

(582)

(44)

3,170

1,799

Increase (decrease) in advances from customers

(447)

368 (22,331)

26,227

Increase (reduction) in profit sharing - management and employees

(800)

-

(800)

-Increase (decrease) in other payables

5,335

547 12,804

26,520

Other:

-

-Interest expense

(89,942)

(46,186)

(120,121)

(103,435)

Income tax and social contribution paid

-

(6,183)

(10,953)

Net cash provided by (used in) operating activities

(133,475)

(135,957)

(42,292)

(167,785)

CASH FLOWS FROM INVESTING ACTIVITIES

(Acquisition) sale of investments

13,346

(933)

30,903

54,356

Dividends received

-

35,344

14,738

12,233

Redemption of (investment in) securities

5,607

23,530

(7,126)

23,305

Purchase of property, plant and equipment

-

(17)

(195)

Acquisition of software

(5,282)

(5,339)

(5,282)

(5,339)

Net cash provided by/(used in) investing activities

13,671

52,602

33,216

84,360

CASH FLOWS FROM FINANCING ACTIVITIES

Related-party transactions

52,621

105,973

31,437

(15,711)

Other transactions with noncontrolling shareholders

-

(620)

8,420

Borrowings and financing:

Borrowings

270,157

-

363,298

222,886

Repayments

(202,136)

(29,617)

(397,797)

(216,521)

Net cash provided by (used in) financing activities

120,642

76,356

(3,682)

(926)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

838 (6,999)

(12,758)

(84,351)

CASH AND CASH EQUIVALENTS

At beginning of period

3,439

13,627

45,883

146,220

At end of period

4,277

6,628

33,125

61,869

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

838 (6,999)

(12,758)

(84,351)

The accompanying notes are an integral part of this interim financial information.

(13)

Notes to the interim financial information

for the period ended September 30, 2017 (in

thousands of Brazilian reais - R$, except per

share value or when otherwise stated)

(Free translation from the original issued in Portuguese. In the event of discrepancies, the Portuguese

language version should prevail.)

1. General information

Rossi Residencial S.A. (“Company” or “Rossi Residencial”) and its investees are engaged in: (a) the

development, construction and sale of residential and commercial properties, and land subdivision;

(b) the provision of civil engineering services through own operations, and (c) holding interests in

Special Purpose Entities (SPEs) and consortia.

The Company is a corporation domiciled in Brazil, with its headquarters in São Paulo, State of São

Paulo, registered with the Brazilian Securities Commission (CVM) since July 1, 1997, and with

shares traded under the ticker symbol RSID3 on the São Paulo Stock Exchange (“B3”, formerly

“BM&F BOVESPA”), included in the “Novo Mercado” segment in January 2006.

Operational and financial restructuring

The Company identified the need to adjust its cash flow to its operational and financial obligations

in view of the significant losses recorded in the current period and in prior years, among other

factors.

Therefore, since August 2015, the Company’s management has been engaged in a process to

reorganize its operations and restructure its debts, especially its corporate debts, for which the first

phase has already been completed, as disclosed in prior quarters. The second phase of the

renegotiation process was started and the Company has now been working with financial

(14)

The following actions have been taken through the reporting date:

1. Significant reduction of the Company’s fixed and operating costs to adjust its operations

to the adverse conditions of the market;

a) The reductions of operating costs are part of the Company’s management’s strategy to

complete works within the planned timeframes, with the consequent reduction of

overhead expenses, reduction of the Head Office’s administrative structure,

optimization of its strategy to operate in other States, and reduction of selling

expenses;

b) Regarding the Company’s operations in other States, on August 29, 2017, the

Company disclosed a Material Fact Notice announcing its decision to end the

joint-venture Capital Rossi Empreendimentos S.A. (“Capital Rossi”), created in 2010

through an association with Construtora Capital S.A. This decision is aligned with the

Company’s strategy to restructure operations, reduce its administrative structure and

focus its activities on certain regions of Brazil.

As at September 30, 2017, the

arrangements to end this partnership are in progress. Making cash disbursements will

not be necessary since the assets held by the joint venture will be split.

2. Increase in the Company’s cash generation in recent periods, postponement of some

launches, acceleration of the process to cancel agreements with default clients, and

subsequent sale of repossessed units, sale of plots of land considered to be non-strategic

for the Company (cash receipt of R$193 million from 2015 to September 2017), and

improvement of the process to transfer units;

3. Corporate debts:

a) Completion of the first phase of the corporate debt restructuring plan with Banco

Bradesco and Banco do Brasil, whereby an extension of the average duration of the

debts from 10 to 39 months was obtained, with a significant reduction of their finance

costs, as discussed in note 12 and disclosed to the market in March 2016 and July

2016; and

b) Continuity in 2017 of the Company’s corporate debt restructuring plan with the

primary objective of adjusting is future cash flow, especially for those installments

maturing in the short term; and

(15)

4. Completing the first debt restructuring phase and accounting for its effects allowed the

Company’s net working capital to become positive, without considering related-party

balances which are currently stated in current liabilities (R$846 million) and refer to

balances with investees that have not been included in the consolidated interim financial

information of Rossi Residencial, according to accounting practices and standards (IFRS).

Considering this elimination with unconsolidated investees, the impact is offset and the

Company’s net working capital becomes positive by R$132 million.

Finally, although we understand that the strategic plan has been implemented successfully to date,

there are other risk factors, some of which described below, that may adversely impact the

proposed plans:

a) Political and economic crisis: despite Brazil’s prospects of economic recovery are better

today than in the past, 2017 is still going through a recession cycle, worsened by the

uncertainty in the current political scenario. The deterioration of the economic scenario,

with high interest rates, rising unemployment rates, drop in consumer confidence, a

stricter policy for mortgage lending, caused households, companies and the government to

be highly indebted. In this scenario, profound adjustments need to be made, indicating a

slow recovery through the unleverage of the main economic agents and a gradual upturn

in the pace of investments;

b) Real estate industry: in 2016, selling prices declined beyond expected and a high number

of cancellations was recorded. 2017 shows a modest recovery of the industry, with

normalization of the inventory levels and sales; however, the risk of cancellations still

exists, given the recession the country is going through and the fact that the real estate

industry is dependent on a better economic scenario.

2. Presentation of interim financial information and significant accounting

policies

2.1. Statement of compliance

The Company’s interim financial information comprises:

a) The Parent’s individual interim financial information prepared in accordance with

Technical Pronouncement CPC 21 (R1) – Interim Financial Reporting and the standards

issued by the Brazilian Securities Commission (CVM) applicable to the preparation of

Interim Financial Information (ITR), identified as “Parent”, and

b) The consolidated interim financial information prepared in accordance with accounting

practices adopted in Brazil, as set out in Technical pronouncement CPC 26 (R1) –

Presentation of Financial Statements and international standard IAS 1 – Presentation of

Financial Statements, issued by IASB (“IFRSs”), which include technical guidance OCPC

04 on the application of technical interpretation ICPC 02 – Real Estate Construction

Agreement, issued by the Accounting Pronouncements Committee (CPC), approved by

the Brazilian Securities Commission (CVM) and the Federal Accounting Council (CFC),

identified as “Consolidated”;

(16)

2.2. Basis of preparation

The interim financial information has been prepared at the historical cost, except for certain assets

and liabilities which were measured at present value and certain inventory items which were

measured at realizable value.

In preparing the interim financial information in accordance with IFRSs, applicable to real estate

development entities in Brazil, accounting estimates were used and judgment was exercised by the

Company’s management.

The Company develops its real estate projects using the corporate structures of Special Purpose

Entities (SPEs) and consortia, through the segregation of assets related to these projects through

these structures.

The information related to the basis for preparation and presentation of the interim financial

information, the summary of the significant accounting policies and the use of estimates and

judgment did not change as compared to the information disclosed in note 2 to the annual

financial statements for the year ended December 31, 2016 (hereinafter referred to as “financial

statements for the year ended December 31, 2016”), published on March 24, 2017 on newspapers

DCI and São Paulo State’s Official Gazette, and made available on the following websites:

www.cvm.gov.br; www.bmfbovespa.com.br; and www.rossiresidencial.com.br/ri.

2.3. Basis of consolidation and investments in subsidiaries

The individual and consolidated interim financial information includes the interim financial

information of the Company and those of the entities controlled by the Company directly, or

indirectly, through its subsidiaries. Control is achieved when the Company:

• Has power over the investee;

• Is exposed or is entitled to variable returns arising from its investment in the investee;

• Has the ability to use such power to affect its variable returns.

The Company reassesses whether it controls or not an investee if facts and circumstances indicate

that there are changes in one or more of the three elements of control listed above.

In entities where the Company needs to obtain the agreement of other shareholders with respect

to significant activities that affect the variable returns of an entity, the Company has a joint

arrangement in the entity, which can be classified either as joint operation or joint venture.

The consolidation of a subsidiary begins when the Company acquires control over the subsidiary

and ends when such control ceases to exist. Specifically, revenue and expenses of a subsidiary

acquired or sold during the period are included in the income statement and other comprehensive

income as from the date the Company acquires control through the date the Company ceases to

control the subsidiary.

(17)

The accounting policies are consistently applied in all consolidated companies, and the financial

statements of investees are prepared for the same reporting period.

As described in note 2.1, the individual interim financial information has been prepared in

accordance with accounting practices adopted in Brazil. In the case of the Company, these

practices differ from the IFRSs applicable to real estate entities in Brazil, for the separate interim

financial information, only with respect to the capitalization of interest incurred by the Parent, in

relation to the subsidiaries’ assets, in the individual financial statements. For IFRS purposes, this

capitalization is permitted only for consolidated financial statements and not for separate financial

statements.

Since there is no difference between the Parent's and the consolidated equity and profit (loss), the

Company elected to present this individual and consolidated financial information in a single set.

2.4. New and revised standards and interpretations

New and revised standards and interpretations already issued and not yet applicable for adoption:

Standard

Description

Effective date

IFRS 9

Financial instruments

January 1, 2018

IFRS 15

Revenue from Contracts with Customers

January 1, 2018

IFRS 16

Leases

January 1, 2019

IAS 28 /CPC 18 - Investment in

Associates, Subsidiaries and Joint

Ventures

Measurement at fair value of associates and joint

ventures

January 1, 2018

IFRS 2/CPC 10 – Share-based

payments

Classification and measurement of share-based

payment transactions

January 1, 2018

IAS 40/CPC 28 - Investment Property

Transfers to investment properties

January 1, 2018

These standards are expected to be issued the Brazilian Securities Commission (CVM) and the

Federal Accounting Council (CFC) so that they can be adopted as from their effective date.

The Company’s management is in process of evaluating the impacts of the new standards and

interpretations already issued but not yet adopted; however, no significant impacts are expected,

except for IFRS 15.

Concerning IFRS 15 – Revenue from Contracts with Customers, on November 4, 2016, CPC 47,

Revenue from Contracts with Customers, was issued. This new standard significantly changes the

rules and criteria to define when revenue from contracts with customers should be recognized and

this may change the percentage-of-completion method. The effects of its application are still being

evaluated by the Company.

New and revised standards and interpretations already issued and adopted

The following new and revised International Financial Reporting Standards (IFRSs), effective for

annual periods beginning on or after January 1, 2017, have been adopted in the interim financial

information. The adoption of these new and revised IFRSs, as listed below, did not have any

significant impact on the amounts reported and/or disclosed for the current and prior years.

• Amendments to IAS 7/CPC 03 - Disclosure of Changes in Cash Flows from Financing

Activities;

(18)

3. Cash and cash equivalents

Cash and cash equivalents are represented basically by banks and investments in savings accounts

with average yield interest of 0.5000% per month.

Short-term investments recorded as cash and cash equivalents are immediately convertible into a

known cash amount and are subject to an insignificant risk of change in value.

Parent

Consolidated

09/30/2017

12/31/2016

09/30/2017

12/31/2016

Cash and banks:

4,120

2,234

32,512

44,201

Short-term investments:

Restricted savings account

157

1.205

613

1.682 4,277

3,439

33,125

45,883

4. Securities

Parent

Consolidated

09/30/2017

12/31/2016

09/30/2017

12/31/2016

Investment funds

403

385 7,869

1,270

Repurchase agreements

-

423 2,891

Bank Certificates of Deposit (CDBs)

2,819

8,444

15,419

12,424

Total

3,222

8,829

23,711

16,585

Assets

3,222

8,829

23,711

16,585

The financial instruments approximate their market values and are classified as loans and

receivables and, accordingly, stated under the amortized cost method, i.e., interest is recognized

based on the effective rate of each instrument. These securities yield 101% to 101.5% of the

DI CETIP CDI.

5. Trade receivables

Parent

Consolidated

09/30/2017

12/31/2016

09/30/2017

12/31/2016

Units under construction

-

158,506

166,978

Adjustment to present value

-

(5,822)

(4,608)

Sale of land

28,210

25,745

28,455

25,990

Completed units

151,064

180,530

743,360

906,426

Services provided

266 9,727

4,664

6,088

Allowance for doubtful debts

(15,249)

(17,113)

(25,148)

(25,970)

164,291

198,889

904,015

1,074,904

Current

137,392

159,017

780,948

944,394

Noncurrent

26,899

39,872

123,067

130,510

The balances classified as completed units refer to receivables from customers for works that have

been completed and are in the process of being released for assignment and transfer to the

financial institutions that financed the respective projects.

(19)

The adjustment to net present value accounted for in profit or loss, in line item “sale of

properties”, totaled R$1,214, Consolidated, in the period ended September 30, 2017 (R$2,594 at

September 30, 2016).

The aging list of trade receivables is as follows:

Parent

Consolidated

09/30/2017

12/31/2016

09/30/2017

12/31/2016

Past due:

Up to 60 days

6,917

6,462

67,442

54,534

61 to 90 days

3,136

3,700

16,496

39,804

91 to 180 days

9,677

8,326

100,044

66,389

Over 180 days

93,821

91,394

269,255

269,409

113,551

109,882

453,237

430,136

Current:

Up to 1 year

23,841

49,135

327,711

514,258

2 to 3 years

7,832

17,536

40,215

45,327

Over 3 years

19,067

22,336

82,852

85,183

50,740

89,007

450,778

644,768

164,291

198,889

904,015

1,074,904

Changes in the allowance for doubtful debts in the periods ended September 30, 2017 and 2016

are as follows:

Parent

Consolidated

09/30/2016

Balance at December 31, 2015

7,543

18,179

Additions

4,455

12,695

Reversals

(1,597)

(6,042)

Balance at September 30, 2016

10,401

24,832

Parent

Consolidated

09/30/2016

Balance at December 31, 2016

17,113

25,970

Additions

10,714

15,644

Reversals

(12,578)

(16,466)

Balance at September 30, 2017

15,249

25,148

Assignment of receivables

(20)

6. Properties for Sale

Parent

Consolidated

09/30/2017

12/31/2016

09/30/2017

12/31/2016

Completed properties (i)

44,739

58,296

349,573

211,658

Properties under construction (i)

-

265,543

590,684

Land for future developments (i)

11,574

9,255

502,690

520,000

Materials

-

2,743

5,036

Advances to suppliers

1,824

1,685

2,350

2,644

Capitalized interest (ii)

-

43,773

47,540

58,137

69,236

1,166,672

1,377,562

Assets

46,563

59,981

663,982

848,486

Noncurrent

11,574

9,255

502,690

529,076

(i) Land for future development is classified in current assets or noncurrent assets based on the

expected launch period of the real estate projects, which is periodically reviewed by

Management. Properties under construction and completed units are classified in current

assets, according to their availability for sale.

(ii) Financing costs of construction in progress are capitalized in “Properties for sale” and

recorded in profit or loss in “Cost of properties sold” as units are sold. Financing costs

recorded in profit or loss in line item “Cost of properties sold” totaled R$49,613, consolidated,

as at September 30, 2017 (R$74,281 as at September 30, 2016), and are recorded in profit and

loss in accordance with OCPC 01 (R1).

7. Advances to business partners

Parent

Consolidated

09/30/2017

12/31/2016

09/30/2017

12/31/2016

Advances to business partners

506,095

524,406

473,187

519,710

“Advances to business partners” balances refer to contributions made in amounts exceeding the

Company’s interest in the real estate projects, which will be realized through the cash to be

generated by such projects, during and at the end of the execution of these projects.Part of these

advances yield interest ranging from 2% to 5% above the CDI.

The Company conducted share acquisition transactions of investees that, in light of specific

contractual provisions on the retention of certain risks by another party, are recognized in assets as

“Advances to business partners” and yield from 2% to 3% above the CDI per year. The balance

of these transactions at September 30, 2017 and December 31, 2016 was R$37,792.

a) Changes in advances to business partners:

Impact on cash

flow

Parent

Consolidated

Balance at December 31, 2016

524,406

519,710

Cash receipts from partners (return of contributions)

Increase

(29,302)

(72,988)

Advances to partners (new contributions)

Reduction

10,991

26,465

(21)

8. Other receivables

Parent

Consolidated

09/30/2017

12/31/2016

09/30/2017

12/31/2016

Dividends and profits receivable

120,137

113,100

26,052

48,405

Recoverable taxes

8,798

10,116

55,383

59,073

Prepaid expenses

1,362

1,719

3,467

7,106

Other (i)

19,241

11,402

31,231

28,014

149,538

136,337

116,133

142,598

(i) Refers to sundry advances and loans to employees.

9. Investments

Investments—Parent and consolidated—are summarized as follows:

Parent

Consolidated

09/30/2017

12/31/2016

09/30/2017

12/31/2016

Subsidiaries

Wholly-owned

2,075,541

2,112,526

-

Due to management of core activities

99 11,910

-

2,075,640

2,124,436

-

Non-controlled entities

Due to non-management of core activities

1,021,416

1,092,098

1,031,223

1,099,456

Goodwill

107,753

119,888

91,344

95,528

Capitalized interest

43,644

47,540

-

3,248,453

3,383,962

1,122,567

1,194,984

Investments in investees that record equity deficiency have been reclassified to line item

“Allowance for investment losses” (note 14), since the Company assumes all the obligations,

including the legal obligations prescribed by the Brazilian legislation.

Interest allocated to real estate projects of investees are capitalized to the respective investments in

Parent and consolidated in line item “Inventories”. Investments, assets and liabilities, equity and

profit and loss for the period ended September 30, 2017 and year ended December 31, 2016 of

investees are detailed in Exhibit I thereto.

Changes in investments for the periods ended September 30, 2017 and 2016 are as follows:

Parent

Consolidated

Balance at December 31, 2015

4,061,831

1,317,915

Increase (decrease) in investments

41 (66,176)

Goodwill realization

(5,282)

Share of profit (loss) of investees

(203,885)

(25,574)

Capitalized interest, net of gain (loss) recognized

(6,030)

-

Dividends declared

(17,654)

-

Transfer to allowance for investment losses (note 14)

190,963

(11,359)

Balance at September 30, 2016

4,019,984

1,209,524

Parent

Consolidated

Balance at December 31, 2016

3,383,962

1,194,984

Increase (decrease) in investments

(10,970)

(28,310)

Goodwill realization

(12,135)

(4,030)

Share of profit (loss) of investees

(219,041)

(52,882)

Capitalized interest, net of gain (loss) recognized

(3,895)

-

Dividends declared

(25,847)

-

Transfer to allowance for investment losses (note 14)

136,380

12,803

(22)

Goodwill

Amortization amounts exceeding the purchase book value are recognized in profit or loss by

applying the Undivided Interest of Land percentages and the percentage of completion

corresponding to each one of the real estate projects:

Parent

Consolidated

09/30/2017

12/31/2016

09/30/2017

12/31/2016

Intangible assets

398

533

102

220 Properties for sale:

Properties under construction

29,634

40,206

19,006

21,743

Land for future developments

77,721

79,149

72,236

73,565

107,355

119,355

91,242

95,308

107,753

119,888

91,344

95,528

10. Property, plant and equipment

Annual

depreciation rate

Parent

Consolidated

- %

09/30/2017

12/31/2016

09/30/2017

12/31/2016

Land

-

1,577

Machinery and equipment

10 20,680

20,735

27,839

27,895

Furniture and fixtures

10 2,806

3,251

3,282

3,977

Facilities

10 12,064

12,112

14,222

14,269

IT equipment

20

103

104

146

189 Sales stands

50 -

-

5,226

6,411

Other property, plant and equipment

-

200

182 35,653

36,202

52,492

54,500

Accumulated depreciation

(24,149)

(22,073)

(34,264)

(31,546)

11,504

14,129

18,228

22,954

At the end of each year, the Company tests its assets for impairment to determine whether there

are any indications that the assets might be impaired. As at December 31, 2016, the Company’s

management revised and did not identify any indications that property, plant and equipment may