Rossi Residencial S.A.

Rossi Residencial S.A.

Individual and Consolidated

Financial Statements for the

Year Ended December 31, 2012 and

Independent Auditor’s Report

Deloitte Touche Tohmatsu Auditores Independentes

Financial Statements (DFP)

December 31, 2012

Contents

Independent auditor’s review report ... 1

Financial statements

Balance sheets ... 4

Income statements ... 6

Statements of comprehensive income ... 7

Statements of changes in equity ... 8

Cash flow statements ... 9

Statements of value added ... 10

Notes to financial statements ... 11

Management report ... 96

Other information considered significant by the company ... 101

Report of the fiscal council ... 103

INDEPENDENT AUDITOR’S REPORT

To the Shareholders, Board of Directors and Management of

Rossi Residencial S.A.

São Paulo

Introduction

We have audited the accompanying individual and consolidated financial statements of Rossi

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

comprise the balance sheet as of December 31, 2012 and the income statement, statement of

comprehensive income, statement of changes in equity and statement of cash flows for the year then

ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the individual and

consolidated financial statements in accordance with accounting practices adopted in Brazil and the

consolidated financial statements in accordance with International Financial Reporting Standards

(IFRSs), applicable to real estate development entities in Brazil and approved by the Accounting

Pronouncements Committee (CPC), the Securities and Exchange 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.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We

conduct our audit in accordance with Brazilian and International Standards on Auditing. Those

standards require that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements. The procedures selected depend on the auditor’s judgment,

including the assessment of the risks of material misstatement of the financial statements, whether

due to fraud or error. In making those risk assessments, the auditor considers internal control

relevant to the Company’s preparation and fair presentation of the financial statements in order to

design audit procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the Company’s internal control. An audit also

includes evaluating the appropriateness of accounting policies used and the reasonableness of

accounting estimates made by Management, as well as evaluating the overall presentation of the

financial statements.

Opinion on the Financial Statements Prepared in Accordance with Accounting Practices

Adopted in Brazil

In our opinion, the individual (Parent) and consolidated financial statements present fairly, in all

material respects, the financial position of Rossi Residencial S.A. as of December 31, 2012, and its

financial performance, its comprehensive income, and its cash flows for the year then ended in

accordance with accounting practices adopted in Brazil.

Opinion on the Consolidated Financial Statements Prepared in Accordance with

International Financial Reporting Standards (IFRSs), Applicable to Real Estate Development

Entities in Brazil, as Approved by the Accounting Pronouncements Committee (CPC), the

Brazilian Securities and Exchange Commission (CVM) and the Federal Accounting Council

(CFC)

In our opinion, the consolidated financial statements present fairly, in all material respects, the

consolidated financial position of Rossi Residencial S.A. as of December 31, 2012, and its

consolidated financial performance and its consolidated cash flows for the year then ended in

accordance with the IFRSs applicable to real estate development entities in Brazil, as approved by

the CPC, the CVM, and the CFC.

Emphasis of matter

As described in Note 2 to the financial statements, the individual and consolidated financial

statements have been prepared in accordance with accounting practices adopted in Brazil. The

consolidated financial statements prepared in accordance with IFRSs applicable to real estate

development entities in Brazil also consider OCPC 04 Application of Technical Interpretation ICPC

02 to Brazilian Real Estate Development Entities, issued by the CPC. Such technical guideline

addresses the recognition of real estate revenues and involves issues related to the meaning and

application of the concept of continuous transfer of risks, rewards and control on the sale of real

estate units, as detailed in note 2 to the financial statements. Our opinion regarding this matter is

unqualified.

As described in Note 2 to the financial statements, the individual financial statements have been

prepared in accordance with accounting practices adopted in Brazil. In the case of Rossi Residencial

S.A. these accounting practices differ from the IFRSs applicable to real estate development entities

in Brazil, applicable to separate financial statements, only with respect to the measurement of

investments in subsidiaries and joint ventures by the equity method of accounting which, while for

purposes of IFRSs applicable to real estate development entities in Brazil, they would be measured

at cost or fair value. Our opinion regarding this matter is unqualified.

Other matters

Statements of value added

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

year ended December 31, 2012, prepared under the responsibility of the Company’s management,

the presentation of which is required by the Brazilian Corporate Law for publicly-traded companies

and as supplemental information for IFRSs, which do not require a presentation of DVA. These

Audit of the individual and consolidated accounting information for the year ended December 31,

2011

The individual and consolidated financial statements for the year ended December 31, 2011,

presented for purposes of comparison, were previously audited by other independent auditors, and

their report thereon, dated October 8, 2012, did not contain any modification.

The accompanying individual and consolidated interim financial information has been translated

into English for the convenience of readers outside Brazil.

São Paulo, March 25, 2013

DELOITTE TOUCHE TOHMATSU

Walter Dalsasso

(Convenience Translation into English from the Original Previously Issued in Portuguese)

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

BALANCE SHEETS AS AT DECEMBER 31, 2012 AND 2011

(In thousands of Brazilian reais - R$)

ASSETS

Note

12/31/2012

12/31/2011

12/31/2012

12/31/2011

CURRENT ASSETS

Cash and cash equivalents

5

351,820

382,968

876,327

663,787

Securities

6

460,065

256,629

488,753

336,940

Trade receivables

7

194,750

287,911

2,725,571

2,341,668

Properties for sale

8

129,170

172,910

1,552,486

1,606,008

Other receivables

9

308,619

122,352

785,313

559,206

Total current assets

1,444,424

1,222,770

6,428,450

5,507,609

NONCURRENT ASSETS

Securities

6

330,778

238,574

330,778

238,574

Trade receivables

7

85,429

72,972

582,698

801,724

Properties for sale

8

93,083

23,068

719,457

370,985

Escrow deposits

17

36,601

44,449

47,672

54,735

Related parties

19

2,206,188

1,916,740

-

-Deferred income tax and social contribution

18

-

-

-

14,905

Investments

10

2,798,250

2,426,326

-

-Property, plant and equipment

11

28,262

29,190

66,418

88,067

Intangible assets

12

31,259

13,096

56,490

57,743

Total noncurrent assets

5,609,850

4,764,415

1,803,513

1,626,733

TOTAL ASSETS

7,054,274

5,987,185

8,231,963

7,134,342

The accompanying notes are an integral part of these financial statements.

(Convenience Translation into English from the Original Previously Issued in Portuguese)

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

BALANCE SHEETS AS AT DECEMBER 31, 2012 AND 2011

(In thousands of Brazilian reais - R$)

LIABILITIES

Note

12/31/2012

12/31/2011

12/31/2012

12/31/2011

CURRENT

Construction financing - real estate loans

13

227,689

91,336

871,239

671,091

Working capital loans

13

324,976

122,229

597,952

553,196

Debentures

14

619,290

127,515

619,290

127,515

Trade payables

-

30,625

9,786

105,351

94,161

Payables for purchase of land

15

9,324

16,418

233,377

223,690

Payroll and related charges

-

11,008

20,425

36,573

38,533

Taxes and contributions payable

-

1,777

2,704

42,757

53,705

Dividends payable

-

-

80,685

-

80,685

Employees' and management's profit sharing payable

24

4,526

15,223

4,526

15,223

Advances from customers

15

826

1,627

215,002

252,660

Deferred taxes and contributions

18

4,982

10,716

194,484

162,483

Equity deficit of investees and other

16

540,985

342,992

54,744

31,807

Total current liabilities

1,776,008

841,656

2,975,295

2,304,749

NONCURRENT

Construction financing - real estate loans

13

903,950

985,000

1,973,142

1,451,386

Working capital loans

13

211,045

33,333

223,885

33,333

Debentures

14

243,932

850,000

243,932

850,000

Payables for purchase of land

15

20,437

13,052

128,425

232,661

Taxes and contributions payable

17

21,356

21,356

25,823

25,823

Provision for risks

17

49,441

23,903

52,059

26,522

Provision for work guarantees

-

36,371

19,372

37,532

19,748

Related parties

19

1,259,257

1,061,266

-

-Deferred taxes and contributions

18

2,185

2,716

41,578

54,589

Other payables

16

232,180

150,829

232,180

150,829

Total noncurrent liabilities

2,980,154

3,160,827

2,958,556

2,844,891

EQUITY

Capital

25

2,573,526

2,025,145

2,573,526

2,025,145

Treasury shares

25

(80,870)

(36,972)

(80,870)

(36,972)

Capital reserves

25

37,222

22,577

37,222

22,577

Accumulated losses

-

(231,766)

(26,048)

(231,766)

(26,048)

Total equity

2,298,112

1,984,702

2,298,112

1,984,702

TOTAL LIABILITIES AND EQUITY

7,054,274

5,987,185

8,231,963

7,134,342

The accompanying notes are an integral part of these financial statements.

(Convenience Translation into English from the Original Previously Issued in Portuguese) ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

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

Note 12/31/2012 12/31/2011 12/31/2012 12/31/2011

NET REVENUES 20 150,956 189,729 2,714,588 2,837,138 COST OF PROPERTIES SOLD AND SERVICES PROVIDED 21 (190,732) (194,480) (2,141,531) (2,146,137) GROSS PROFIT (LOSS) (39,776) (4,751) 573,057 691,001 OPERATING INCOME (EXPENSES)

Administrative 22 (181,391) (232,561) (216,879) (256,711) Executive officers' fees (4,344) (4,587) (4,344) (4,587) Selling 22 (54,882) (54,981) (285,775) (265,163) Depreciation and amortization (6,866) (6,108) (7,175) (6,223) Equity in subsidiaries 10 202,176 356,225 - -Other operating expenses, net 22 (68,336) (19,879) (52,135) (12,620) INCOME (LOSS) BEFORE FINANCE INCOME (COSTS) (153,419) 33,358 6,749 145,697 Finance income 23 67,096 173,962 109,300 202,330 Finance expenses 23 (119,395) (128,516) (237,900) (186,120) INCOME (LOSS) BEFORE TAXES (205,718) 78,804 (121,851) 161,907 INCOME TAX AND SOCIAL CONTRIBUTION 18

Current - - (127) (56,153) (49,282) Deferred - - - (27,714) (33,948) NET PROFIT (LOSS) FOR THE YEAR (205,718) 78,677 (205,718) 78,677 EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO THE

COMPANY'S SHAREHOLDERS (IN R$ PER SHARE)

Basic 25 (0.7442) 0.2955 Diluted 25 (0.7397) 0.2923

The accompanying notes are an integral part of these financial statements.

(Convenience Translation into English from the Original Previously Issued in Portuguese)

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED

DECEMBER 31, 2012 AND 2011

(In thousands of Brazilian reais - R$)

12/31/2012

12/31/2011

12/31/2012

12/31/2011

NET PROFIT (LOSS) FOR THE YEAR

(205,718)

78,677

(205,718)

78,677

OTHER COMPREHENSIVE INCOME

-

-

-

-COMPREHENSIVE INCOME FOR THE YEAR

(205,718)

78,677

(205,718)

78,677

Parent

Consolidated

(Convenience Translation into English from the Original Previously Issued in Portuguese) ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(In thousands of Brazilian reais - R$)

Retained earnings Treasury Capital (accumulated

Note Capital shares reserve losses) Total

BALANCES AS AT DECEMBER 31, 2010 2,022,921 (24,385) 9,208 (24,040) 1,983,704 Capital increase 2,224 - - - 2,224 Treasury shares - (12,587) - - (12,587) Share-based compensation - - 12,888 - 12,888 Capital reserve - - 481 - 481 Net profit for the year - - - 78,677 78,677 Proposed dividends - - - (80,685) (80,685) BALANCES AS AT DECEMBER 31, 2011 2,025,145 (36,972) 22,577 (26,048) 1,984,702 Capital increase 25 571,613 - - - 571,613 Shares issued 25 (23,232) - - - (23,232) Treasury shares 25 - (43,898) - - (43,898) Share-based compensation 25 - - 14,645 - 14,645 Net loss for the year - - (205,718) (205,718) BALANCES AS AT DECEMBER 31, 2012 2,573,526 (80,870) 37,222 (231,766) 2,298,112

(Convenience Translation into English from the Original Previously Issued in Portuguese)

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(In thousands of Brazilian reais - R$)

12/31/2012 12/31/2011 12/31/2012 12/31/2011

CASH FLOW FROM OPERATING ACTIVITIES

Income (loss) before income tax and social contribution (205,718) 78,804 (121,851) 161,907 Adjustments not representing cash inflow or outflow:

Depreciation and amortization 6,852 6,205 35,802 29,407 Allowance for doubtful accounts 11,971 6,182 11,971 6,233 Provision for civil claims 14,774 5,756 29,336 5,924 Provision for labor claims 21,270 - 21,270 -Provision for work guarantees 16,998 10,964 17,784 11,045 Provision for share-based compensation 14,645 13,369 14,645 13,369 Provision for profit sharing 15,583 37,616 15,583 37,616 Equity in subsidiaries (202,176) (356,225) - -Gain (loss) on investments sold 1,295 1,652 (773) 4,061 Loss on impaired assets 30,591 12,264 27,904 13,135 Deferred taxes and contributions (6,264) (1,813) 6,180 11,108 Financial interest and charges, net 55,558 (46,726) (94,236) (152,578)

(224,621)

(231,952) (36,385) 141,227 Changes in current and noncurrent assets and liabilities:

Increase (decrease) in long-term investments - 286,947 - 286,947 Increase (decrease) in trade receivables 103,960 259,876 157,041 (506,220) Increase (decrease) in properties for sale (16,426) 68,237 (257,645) (581,528) Increase (decrease) in other credits, net

of items under liabilities 60,007 232,180 (168,747) (187,361) Increase in other assets 7,848 (1,799) 7,063 (3,823) Increase (decrease) in payables for purchase of land (142) 70,797 (177,008) 196,612 Decrease in taxes and contributions (927) (940) (67,100) (22,099) Increase (decrease) in advances from customers (801) (913) (37,658) 4,894 Decrease in employees' and management profit sharing payable (26,280) (32,335) (26,280) (32,335) Increase (decrease) in other liabilities (22,315) 5,266 (39,071) 49,132 Net cash (used in) provided by operating activities (119,697) 655,364 (645,790) (654,554) CASH FLOW FROM INVESTING ACTIVITIES

Acquisition of investments (191,748) (428,501) - -Dividends received 48,900 - - -Redemption of securities (268,925) (230,220) (219,303) (257,504) Purchase of property, plant and equipment items, net of disposals (3,330) (18,943) (11,559) (62,583) Acquisition of software (20,757) (9,029) (20,896) (9,029) Net cash (used in) provided by investing activities (435,860) (686,693) (251,758) (329,116) CASH FLOW FROM FINANCING ACTIVITIES

Related-party transactions (121,643) (289,657) - -Dividends paid (80,685) (83,071) (80,685) (83,071) Capital increase 571,613 2,224 571,613 2,224 Treasury shares (43,898) (12,587) (43,898) (12,587) Debt: Funds raised 724,909 1,125,274 2,016,707 2,178,993 Repayment (363,751) (558,785) (1,191,513) (856,191) Debentures: Funds raised 33,737 150,000 33,737 150,000 Repayment (195,873) (113,390) (195,873) (113,390) Net cash provided by financing activities 524,409 220,008 1,110,088 1,265,978 NET INCREASE IN CASH AND CASH EQUIVALENTS (31,148) 188,679 212,540 282,308 CASH AND CASH EQUIVALENTS

At the beginning of year 382,968 194,289 663,787 381,479 At the end of year 351,820 382,968 876,327 663,787

The accompanying notes are an integral part of these financial statements.

(Convenience Translation into English from the Original Previously Issued in Portuguese)

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

STATEMENTS OF VALUE ADDED FOR THE YEARS ENDED

DECEMBER 31, 2012 AND 2011

(In thousands of Brazilian reais - R$)

12/31/2012

12/31/2011

12/31/2012

12/31/2011

REVENUES

Sale of properties and services provided

156,872

202,004

2,785,073

2,924,298

Allowance for doubtful accounts

(11,971)

(6,182)

(11,971)

(6,233)

144,901

195,822

2,773,102

2,918,065

INPUTS FROM THIRD PARTIES

Cost of properties sold

(67,332)

(61,130)

(1,685,552)

(1,785,648)

Materials, energy, third-party services and other

(90,493)

(97,982)

(256,479)

(243,987)

Loss on assets

(30,591)

(12,264)

(27,904)

(13,135)

(188,416) (171,376)

(1,969,935) (2,042,770)

GROSS VALUE ADDED

(43,515) 24,446

803,167 875,295

Depreciation and amortization

(6,852)

(6,205)

(35,802)

(29,407)

Wealth created by the entity

(50,367)

18,241

767,365

845,888

VALUE ADDED FROM TRANSFER

Equity in subsidiaries

202,176

356,225

-

-Finance income

67,096

173,962

109,300

202,330

Other items

47

-

47

11,139

269,319

530,187

109,347

213,469

TOTAL VALUE ADDED FOR DISTRIBUTION

218,952

548,428

876,712

1,059,357

Distribution of value added

Personnel

Direct compensation

137,060

154,307

269,782

242,825

Benefits

4,253

5,997

43,026

21,432

F.G.T.S.

9,035

8,482

21,427

16,637

150,348

168,786

334,235

280,894

Taxes, rates and contributions

Federal

26,566

41,513

205,729

221,289

State

-

-

2,894

2,223

Municipal

2,391

4,530

38,700

59,536

28,957

46,043

247,323

283,048

Third-party capital compensation

Interest

236,973

248,013

488,609

406,122

Rental

8,392

6,909

12,263

10,616

245,365

254,922

500,872

416,738

Own capital compensation

Retained earnings (losses incurred)

(205,718)

78,677

(205,718)

78,677

(205,718)

78,677

(205,718)

78,677

218,952

548,428

876,712

1,059,357

The accompanying notes are an integral part of these financial statements.

(Convenience Translation into English from the Original Previously Issued in Portuguese)

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

(Amounts in thousands of Brazilian reais - R$, except amounts per share or unless

otherwise stated)

1. GENERAL INFORMATION

Rossi Residencial S.A. (“Company” or “Rossi Residencial”) and its investees are

engaged in: (a) the development, building and sale of residential and commercial

properties, and land subdivision; and (b) the provision of engineering services

through own operations, by holding interests in joint ventures (Special Purpose

Entities (SPEs)) and consortiums.

The Company is a corporation domiciled in Brazil with registered head offices in

São Paulo, State of São Paulo, registered with the Brazilian Securities and

Exchange Commission (CVM) since July 1, 1997, and with shares traded on the

São Paulo Stock Exchange (BM&F BOVESPA - RSID3).

The individual and consolidated financial statements on Rossi Residencial for the

year ended December 31, 2012 were authorized for disclosure by the Board of

Directors on March 25, 2013, in accordance with Article 25, VI, of CVM

Instruction 480/09.

2. SIGNIFICANT ACCOUNTING POLICIES

The individual financial statements for the year ended December 31, 2012 have

been prepared in accordance with accounting practices adopted in Brazil, which

comprise the standards issued by the CVM and the technical pronouncements,

interpretations and guidelines issued by the Accounting Pronouncements

Committee (CPC), and is in accordance with the International Financial Reporting

Standards (IFRSs) applicable to real estate development entities in Brazil, as

approved by the CPC, the CVM and the Federal Accounting Council (CFC),

including OCPC 04 - Application of Interpretation ICPC 02 to Brazilian Real

Estate Development Entities, as regards to the recognition of revenues, costs and

expenses arising from real estate development operations during the progress of

construction (percentage of completion method (POC)).

Certain matters related to the meaning and application of the concept of continuous

transfer of the risks, rewards and control of ownership in real estate sales are being

analyzed by the International Financial Reporting Interpretation Committee

(IFRIC). The results of such analysis might lead the Company to revise its

accounting policies related to revenue recognition.

The Company carries out the developments through the joint ventures (Special

Purpose Entities - SPE) and consortia, whose project-related assets, as at December

31, 2012, are not part of real estate development segregation structures, as

permitted by Law 10931/04

.

The financial statements have been prepared taking into consideration the historical

cost as the base value and adjusted to reflect the financial assets and financial

liabilities measured as a balancing item to profit or loss for the year.

In preparing the financial statements 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 areas in which the assumptions

and estimates are significant for the financial statements are disclosed in Note 3.

2.1. Basis of consolidation

The financial statements have been prepared in conformity with the relevant

consolidation procedures and statutory provisions. In consolidation

investments in investees and intragroup balances receivable and payable and

revenues and expenses are eliminated.

As control of investees is shared, they are proportionately consolidated,

based on the percentage ownership interest held in each investee (Note 10).

The accounting policies are consistently applied in all consolidated

companies and the financial statements of investees are prepared for the

same reporting period.

The exclusive mutual fund, managed by independent fund managers, is

organized as a special purpose entity (SPE), since the Company has control

over its operations, and fully assumes its risks and rewards. Accordingly, this

fund is consolidated in the financial statements.

Securities held through such funds are recorded in line items “Cash and cash

equivalents” or “Held-for-trading securities”, taking into account the original

maturity of the securities and the funds’ investment strategies, which

forecast trading these securities within periods that qualify the related

amounts as highly liquid (Notes 5 and 6).

2.2. Segment information

Management believes that the disclosure of segment information is not

applicable to the Company’s activities since Management’s activity

monitoring, performance assessment and decision-making is made to

allocate funds at each real estate development and not at segment level.

It believes, therefore, that the investees Rossi Consultoria de Imóveis Ltda.

(Rossi Vendas) and Rossi Indústria de Artefatos de Concreto Ltda. (Rossi

Pré- Moldados) are not independent businesses.

2.3. Functional and reporting currency

The financial statements are presented in Brazilian reais (R$), which is the

functional currency of the Company and its investees. The Company does

not have any foreign currency-denominated transactions.

2.4. Cash and cash equivalents

Cash equivalents are held to meet short-term cash commitments and not for

investment or any other purposes. The Company holds short-term

investments, basically represented by Bank Certificates of Deposit (CDBs)

and investment funds, and considers cash equivalents amounts readily

convertible to a known cash amount and which are subject to an insignificant

risk of change in value. Therefore, an investment fund normally qualifies as

a cash equivalent only when it has a short maturity of, for example, three

months or less from the date of acquisition.

2.5. Securities

The securities are classified as follows: held-to-maturity securities,

available-for-sale securities and held-for-trading securities. Held-for-trading

securities are stated at fair value against profit or loss. Classification depends

on the purpose for which the investment was acquired. When the purpose of

acquiring the investment is the investment of funds so as to obtain earnings

in the short-term, they are classified as held-for-trading securities; when the

intent is to invest funds to keep investments held to maturity, they are

classified as held-to-maturity investments, provided that Management has

the intention and financial condition to keep the investment held to maturity.

The Company does not have any transactions that can be classified as

available-for-sale securities.

2.6. Trade receivables

Carried at present and realizable values. The classification between current

and noncurrent is made based on the expected maturity flow of the contracts.

Receivables from real estate development

Adjusted for inflation according to contractual clauses, as follows:

• Up to the delivery of the properties sold, based on the National Civil

Construction Index (INCC).

• After the delivery of the properties sold, using the General Market Price

Index (IGP-M) fluctuation, plus 12% interest per year (“Price” table).

The sale of land plots is adjusted using the IGP-M or INCC fluctuation.

The adjustment to present value is calculated on the uncompleted units and is

accounted using the same allocation criteria of revenue from the sale of

properties. The discount rate is represented by the Company’s weighted

average borrowing cost, less projected IGP-M for a 12-month period.

The allowance for doubtful accounts is set up based on an analysis of the

receivables realization risks, in an amount deemed sufficient by Management

to cover estimated possible losses on the realization of these receivables,

substantially taking into consideration the portions of collateral transfer of

receivables as guarantees of promissory notes, as well as inflation

adjustments of past-due receivables, since basically the portfolio is

guaranteed by the properties sold.

The Company and its investees assign and/or securitize receivables related

the loans obtained through the collateral transfer of completed projects. The

Company conducts securitization transactions through the issuance of

Mortgage Assignment Agreement (CCIs), which are assigned to financial

institutions, under which no mortgage obligations are assumed and,

therefore, such amount is reimbursed by the Company in case of

non-payment. For these securitization transactions, the amount credited by

financial institutions is accounted for as a liability since the Company is still

subject to credit risks and is the manager of such portfolio.

2.7. Properties for sale

Properties for sale are carried at construction cost, which does not exceed

their net realizable value. In the case of properties under construction, the

inventory portion represents the cost incurred in the unsold units, consisting

of the apartments, houses and commercial complexes construction costs.

This line item also includes materials to be used in works, financial charges

and expenses on new projects.

with the commitment of delivering real estate units in the project to be

developed in the related land or in other developments.

The classification between current and noncurrent is carried out based on the

expected launching period of the real estate developments.

The Company and its investees annually test properties for sale and land for

future developments for impairment to determine if events or changes in

economic, operational or technological circumstances indicate that such

assets might be impaired.

The criterion of this test takes into consideration the expected real estate

development launchings, the projected discounted cash flow, and the market

value of the properties.

2.8. Investments

The Company’s and its investees’ investments are accounted for by the

equity method of accounting. The Company holds interests in other entities,

basically consisting of joint ventures, in which the developers have a

contractual agreement that establishes the joint control of several of the

investees’ activities. The Company recognizes its interests in investees using

the proportionate consolidation method. The Company consolidates its stake

in the assets, liabilities, income and expenses of the investees, on a per line

item basis, in its consolidated financial statements. The investees’ financial

statements are prepared for the same year of the Company’s financial

statements.

Adjustments are made to the Company’s consolidated financial statements to

eliminate the Company’s share of the investee’s assets and liabilities, income

and expenses, and unrealized gains and losses on intragroup transactions.

Losses on transactions are immediately recognized if the loss provides

evidence of asset impairment.

Goodwill

Represents the price paid on acquisition that exceeds the carrying amount of

the Company’s interest in an investee’s equity. If the acquisition cost

exceeds the carrying amount of the acquired share of an investee’s equity,

the difference is allocated to profit or loss for the year using the realization

of the investee’s assets as amortization criteria. In cases where the

acquisition cost is lower, the difference is recognized as gain in profit or loss

for the year.

2.9. Property, plant and equipment

Carried at purchase cost, less depreciation recorded on a straight-line basis

using the applicable rates. This cost includes expenses on the construction of

sales stands when their estimated useful lives exceed 12 months, and are

depreciated over their useful lives (Note 11).

Residual values, useful lives and the depreciation method are reviewed at the

end of each annual reporting period and adjusted as appropriate. A property,

plant and equipment item is derecognized on disposal or when no economic

benefit is expected from its use or disposal. Any gain or loss arising from the

derecognition of the asset is included in profit or loss for the year.

2.10. Intangible assets

Software licenses

Software licenses acquired are carried at purchase cost and are qualified

according to their estimated useful lives at the rates described in Note 12.

Software maintenance costs are recognized as expenses when incurred.

Any amount in excess of the carrying amount on the acquisition of assets,

arising from the surplus of trade receivables, is classified in “Intangible

assets” in the consolidated.

2.11. Taxes

a) Current income tax and social contribution

Corporate income tax (IRPJ) (25%) and social contribution on net

income (CSLL) (9%) are calculated based on at the combined statutory

rate of 34%. Deferred income tax is generated by temporary differences

at the end of the reporting period between the tax bases of assets and

liabilities and their carrying amounts.

As permitted by the tax law, certain investees opted for taxation based on

deemed income. For those investees, the IRPJ and CSLL tax base is

calculated at the rate of 8% and 12% on gross revenue, respectively, on

which the regular tax rates of the related tax are levied.

The Company’s project-related assets are part of real estate development

equity segregation structures, as permitted by Law 10931/04.

b) Deferred income tax and social contribution

Deferred tax assets are recognized to the extent that it is probable that

future taxable income will be available for offset against temporary

differences.

When it is not probable that the deferred tax assets will be realized, no

accounting recognition is made (Note 18).

2.12. Payables for purchase of land and advances from customers

In real estate purchase transactions, commitments can be undertaken for

payment in cash, classified as payables for purchase of land, or with the

delivery of future real estate units, classified as advances from customers.

The amounts are recognized according to the contractual clauses, based on

the fair value of the land purchased, and in the cases of future delivery of

real estate units, by determining the product that will be developed in the

land.

Obligations are discharged substantially with the completion of the works

(revenue recognition).

2.13. Other current and noncurrent assets and liabilities

An asset is recognized in the balance sheet when it is probable that future

economic benefits will flow to the Company and its cost or value can be

reliably measured. A liability is recognized in the balance sheet when the

Company has a legal or constructive obligation as a result of a past event and

it is probable that an outflow of funds be required to settle it. Liabilities

include contractual charges or inflation adjustments, when applicable.

Provisions are recognized based on the best estimates of the risk involved.

Assets and liabilities are classified as current when their realization or

settlement is likely to occur within the next twelve months. Otherwise, assets

and liabilities are stated as noncurrent.

2.14. Provisions for risks

The accounting policies for recognition and disclosure of the contingent

liabilities and legal obligations are as follows: provisions for risks are

recognized when losses are assessed as probable and amounts can be reliably

measured. Contingent liabilities assessed as possible losses are only

disclosed in the notes to financial statements and the contingent liabilities

assessed as remote losses are not disclosed; and (b) legal obligations are

recorded as noncurrent regardless of any assessment on the likelihood of a

favorable outcome in proceedings (Note 17).

2.15. Impairment losses of nonfinancial assets

Assets are annually tested for impairment to determine whether events or

changes in economic, operating or technological circumstances indicate that

they might be impaired.

Whenever such evidences are identified and an asset’s carrying amount

exceeds its recoverable value, an allowance for impairment is recognized to

reduce the carrying amount to the recoverable value.

2.16. Adjustments to present value of assets and liabilities

Monetary assets and liabilities as adjusted to their present value on initial

recognition of the transaction, taking into consideration the contractual cash

flows, the explicit interest rate, and in certain cases the implicit interest rate

of the related assets and liabilities, and the market rates used for similar

transactions. Subsequently, they are allocated to profit or loss using the

effective interest method in relation to the contractual cash flows.

2.17. Employee benefits

a) Profit sharing program

The Company has an employee and management profit sharing program,

as provided for by the relevant prevailing legislation, which can be either

under voluntary programs maintained by the companies or agreements

with employees or trade unions, and which is approved at the Board of

Director’s Meeting.

The provision for employee and management profit sharing bonuses is

accounted for on an accrual basis, based on the criteria and assumptions

established in the Company’s profit sharing program (Note 24.a).

b) Pension plan

The Company contracted a supplementary pension plan for its employees

and officers, as a defined contribution pension plan (PGBL).

In view of the type of the plan, Company contributions are classified as

defined and directly accounted for, as the Company’s obligation in each

fiscal year is determined by the amounts to be contributed in the period.

Consequently, no actuarial valuations are necessary to measure the

obligation or expense, and there is no possibility of any actuarial gain or

loss.

c) Stock option plan

The purpose of the stock option plan is granting Company stock to

officers and managerial level employees, and individuals who provide

services to the Company or to its subsidiary. The Plan has a stock option

ceiling that results in a maximum dilution of 3% of the Company’s

capital on the date each program is approved. The strike price is defined

for each plan.

After the option is exercised, the Board of Directors determines if the

Company’s capital should be increased by issuing new shares to be

subscribed by the participants, in accordance with Article 166, III, of

Law 6404/76, or if treasury shares will be used to settle the exercise of

stock options, pursuant to relevant regulation. Pursuant to Article 171,

paragraph 3 of Law 6404/76, shareholders do not have any preemptive

right on the grant and exercise of the options deriving from the plan.

The share-based payment, qualified as an equity instrument (equity

settled) is calculated based on the amount attributed to the services

received from employees in the plans, which is determined at the fair

value of the stock options granted, set on the date each plan was granted

using an option pricing model, and is recognized as an expense during

the vesting period, namely between the date the stock options are granted

and the date they become vested, as a balancing item to equity.

2.18. Financial instruments

Financial assets and financial liabilities are recognized when an entity

becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair values.

The fair value is the amount for which an asset could be exchanged, or a

liability settled, between knowledgeable, willing parties in an arm’s length

transaction. Transaction costs directly attributable to the acquisition or

issuance of financial assets and financial liabilities are added to or deducted

from the fair value of financial assets and financial liabilities, if applicable,

after their initial recognition, except for financial assets and financial

liabilities at fair value through profit or loss.

Financial assets

Financial assets are classified into the following specific categories: (i)

financial assets measured at fair value through profit or loss; (ii)

held-to-maturity investments; (iii) loans and receivables; and (iv) available-for-sale

financial assets. Classification depends on the nature and purpose of the

financial assets and is determined upon initial recognition.

(i) At fair value through profit or loss

Financial assets and liabilities are measured at fair value through profit

or loss when they are held for trading and are actively and frequently

traded, mainly in the short term. Such assets are measured at fair value

and their variances are recognized in finance income (costs) for the

year.

(ii) Investments held to maturity

Non-derivative financial assets with fixed or determinable payments

and fixed maturity, which the Company has the positive intent and

ability to hold to maturity. These are carried at cost plus contractual

income earned as a balancing item to profit or loss for the year, using

the effective interest method.

(iii) Loans and receivables

These include loans and receivables assets with fixed or determinable

payments not quoted in an active market. Loans and receivables are

adjusted according to the effective rate of the underlying transaction.

The effective rate is the rate set out in the contracts and adjusted

according to the related costs of each transaction.

(iv) Available-for-sale financial assets

Available-for-sale financial assets correspond to non-derivative

financial assets that are designated as “available-for-sale” or are not

classified as: (a) loans and receivables; (b) held-to-maturity

investments; or (c) financial assets at fair value through profit or loss.

Financial liabilities

Financial liabilities are classified either as “Financial liabilities at fair value

through profit or loss” or “Other financial liabilities”.

(i) Financial liabilities at fair value through profit or loss

Financial liabilities are classified as at fair value through profit or loss

when they are either held for trading or designated as at fair value

through profit or loss. Change in fair value losses are recognized in

profit or loss.

(ii) Other financial liabilities

Other financial liabilities, including borrowings, financing and

debentures, are initially measured at fair value, net of transaction costs.

Subsequently, they are measured at amortized cost under the effective

interest method, and finance costs are recognized based on effective

compensation.

The effective interest method is a method of calculating the amortized

cost of a financial liability and of allocating interest expense over the

relevant period. The effective interest rate is the rate that exactly

discounts the estimated future cash payments through the expected life

of the financial liability.

2.19. Treasury shares

They are equity instruments that have been bought back by the Company

(treasury shares) and are recognized at cost and deducted from equity. No

gain or loss is recognized in the profit or loss for the year on the purchase,

sale, issuance or cancelation of the Company’s own equity instruments. Any

differences between the carrying amount and the consideration paid are

recognized in “Other capital reserves”.

2.20. Revenue and expense recognition

a) Revenue from property development and sale

Revenue is recognized to the extent it is probable that economic benefits

will be generated and when it can be reliably measured.

For installment sales of a completed unit, revenue is recognized at the

time the sale is performed, regardless of the term for receipt of the

amount established by contract.

Fixed interest and inflation adjustments based on the IGP-M or the INCC

are allocated to profit or loss, in line item “Real estate sales”, on an

accrual basis.

In sales of units under construction, revenue is allocated according to the

criteria established by the guidelines contained in OCPC 01, as follows:

(i) the incurred cost of units sold, including cost of land, is fully allocated

to profit or loss; (ii) revenues from sales are allocated to profit or loss

using the percentage-of-completion method of each project, which is

measured as according to the cost incurred prorated to the total budgeted

cost of the related projects; (iii) revenues from sales calculated according

to item (ii), including inflation adjustments, net of installments already

received, are accounted for as trade receivables or advances from

customers, according to the relationship between the accounted for

revenues and the amounts received; (iv) financial charges on real estate

financing, of debts incurred to acquire land, debentures and working

capital are capitalized at the cost of each project, when linked to

construction, and allocated to profit or loss proportionally to the units

sold. The financial charges attributed to unsold units are classified in

properties for sale; (v) selling expenses inherent to the sales activity are

classified as incurred as projects are advertised or the expenses incurred,

or on an accrual basis. Selling expenses consist basically of advertising

and sales commissions; (vi) the provision for warranties is set up at an

amount considered sufficient by Management to cover possible future

disbursements, considering units delivered in the warranty period, at the

historical cost; (vii) barters, for the delivery of properties to be built, are

recognized at fair value and accounted for as a component of the land

bank, as a balancing item to advances from customers in liabilities, when

the underlying contractual clauses are complied; (viii) the Company

assessed its real estate unit sales contracts and the contracts entered into

believes that the contracts entered into are within the scope of CPC 17

Construction Arrangements, since the risks and rewards of ownership are

continuously transferred to the committed buyer of the property.

Termination of agreements

In case of termination of real estate unit sale agreement, the revenues and

costs recognized in profit or loss are reversed, charged against “Sale of

real estate” and credited to “Cost of sales and services”, as a balancing

item to “Inventories of properties for sale”. The amount to be reimbursed

to customers is accounted for in “Payables for customer termination” in

current liabilities.

b) Revenue from services

Revenues from services provided are represented by project management

and real estate management activities, recognized on an accrual basis.

2.21. Earnings (loss) per share

Basic earnings (loss) per share are calculated by dividing profit (loss) for the

year attributable to the holders of the Company’s common shares by the

weighted average number of common shares outstanding in the period.

Diluted earnings (loss) per share are calculated by dividing profit (loss) for

the year attributable to the holders of the Company’s common shares by the

weighted average number of common shares outstanding in the period plus

the weighted average number of common shares that would be issued if all

potential common shares were effectively converted into common shares.

2.22. Business combination

The acquisition method is used to account for each business combination

conducted by the Company.

The acquisition cost is measured as the fair value of the transferred assets,

the equity instruments issued and the liabilities incurred or assumed on the

transaction date. Expenses related to the acquisition are recognized in the

profit or loss for the year, when incurred.

Identifiable assets acquired and liabilities assumed are measured at fair value

on acquisition date. The acquisition cost exceeding the fair value of

identifiable assets acquired and liabilities assumed is recorded as goodwill

and, if lower, it is recognized as gain on bargain purchase in profit or loss for

the year on the acquisition date.

In transactions where the Company acquires the control of a business in

which it held an equity interest immediately before the acquisition date, such

initial equity interest is measured at fair value on the date the control is

acquired, which in case of a gain on bargain purchase, is recognized in profit

or loss for the year.

2.23. New standards and interpretations issued and not yet adopted

Certain standards, revised standards and IFRS interpretations issued by the

IASB are not yet effective for the financial statements for the year ended

December 31, 2012, as follows:

- IFRS 9 - Financial Instruments.

- IFRS 10 - Consolidated Financial Statements.

- IFRS 11 - Join Arrangements.

- IFRS 12 - Disclosure of Interests in Other Entities.

- IFRS 13 - Fair Value Measurement.

- IFRIC 20 - Stripping Costs in the Production Phase of a Surface Mine.

- Amendments to IFRS 7 - Disclosures - Offsetting Financial Assets and

Financial Liabilities.

- Amendments to IFRS 9 and IFRS 7 - Mandatory Application Date of IFRS

9 and Transition Disclosure.

- Amendments to IFRS 10, IFRS 11 and IFRS 12 – Consolidated Financial

Statements, Joint Arrangements and Disclosure of Interests in Other

Entities: Transition Guide.

- Amendments to IAS 1 – Presentation of Other Finance Income (Costs).

- Amendments to IAS 19 - Employee Benefits.

- Amendments to IAS 27 - Separate Financial Statements.

- Amendments to IAS 28 - Investments in Associates and Subsidiaries.

- Amendments to IAS 32 - Offsetting Financial Assets and Financial

Liabilities.

- Amendments to IFRSs – 2009-2011 Annual Improvement Cycle.

The CPC has not yet issued the pronouncements and amendments related to

the new and revised IFRSs above. Because of the CPC’s and the CVM’s

commitment to keep the set of standards issued updated according to the

changes made by the IASB, it is expected that such pronouncements and

amendments will be issued by the CPC and approved by the CVM by the

date they become effective.

2.24. Standards and interpretations on consolidation, joint arrangements,

associates and disclosures

In May 2011, a package of five standards on consolidation, joint

arrangements, associates and disclosures was issued, including IFRS 10,

IFRS 11, IFRS 12, IAS 27 (revised in 2011), and IAS 28 (revised in 2011).

The main requirements of these five standards are as follows:

IFRS 10 supersedes parts of IAS 27 - Consolidated and Separate Financial

Statements that address the consolidated financial statements. SIC-12 -

Consolidation – Special Purpose Entities was superseded by IFRS 10. Under

IFRS 10, there is one single basis of consolidation, i.e., control. Additionally,

IFRS 10 provides a new definition of control encompassing three

components: (a) authority over an investee; (b) exposure, or right to variable

returns on its interest in the investee and (c) ability to use its authority over

the investee to affect the amount of returns to the investor. Comprehensive

guidance has been included in IFRS 10 to address complex scenarios.

IFRS 11 supersedes IAS 31 - Interests in Joint Ventures. IFRS 11 addresses

how a joint arrangement where two or more parties have joint control is to be

classified. SIC-13 - Joint Ventures - Non-Monetary Contributions by

Venturers was withdrawn with the application of IFRS 11. Under IFRS 11,

joint arrangements are classified as joint operations or joint ventures

according to the rights and obligations of the parties to the joint

arrangements. On the other hand, under IAS 31, there are three types of joint

arrangements: jointly controlled entities, jointly controlled assets and jointly

controlled operations.

Additionally, under IFRS 11, joint ventures are recorded under the equity

method of accounting, while jointly-controlled entities, under IAS 31, can be

accounted for under the equity method of accounting or the proportionate

accounting method.

IFRS 12 is a disclosure standard applicable to entities that have interests in

subsidiaries, joint arrangements, associates and/or unconsolidated structured

entities. In general, the disclosure requirements in IFRS 12 are more

extensive than those in the current standards.

In June 2012, the amendments to IFRS 10, IFRS 1, and IFRS 12 were issued

to clarify certain transition rules on the first-time adoption of these IFRSs.

The Company’s management is assessing the impact of applying these

standards, revised standards and interpretations. Based on preliminary

analyses, the adoption of IFRS 11 could result in significant changes in the

presentation of the Company’s financial position and performance. This

standard addresses the accounting of joint arrangements where two or more

parties hold the control. The Company defines its joint arrangements as joint

ventures and under this standard, the consolidation criteria could be changed.

2.25. Restatement of financial statements

In order to enhance the set of financial statements, the Company’s

management revised a few accounting policies used until 2011 and decided

to modify certain accounting policies, as described below, on a retrospective

basis, as prescribed in CPC 23 – Accounting Policies, Changes in

Accounting Estimates and Errors. Consequently, adjustments were identified

and made in the financial statements beginning January 1, 2009. The

adjustments did not affect the balance of cash and cash equivalents.

The changes made are summarized below:

a) Calculation of the allocation of revenue based on the

construction-percentage of completion method (POC)

In the various real estate projects developed through joint ventures,

where one or more consortium members give the land, while one or

more consortium members are responsible for the real estate

development, the revenue was previously recognized in profit or loss

through segregation between land and real estate development, with

differentiated margins for each item separately and at different periods

of time. Such practice usually resulted in a more accelerated

recognition of revenues in entities that gave the land than in the

entities responsible for the real estate developments. Based on these

financial statements, the Company changed its practice so as to

recognize revenues and profit and loss by real estate project to reflect

the same margin for the land and buildings of the same real estate

project. Consequently, as at December 31, 2011, the balance of equity

was decreased by R$596,585, and profit for the year ended then ended

was decreased by R$67,776.

b) Gain (loss) on sale of investments

After a detailed analysis of a few transactions, involving the sale of

interests in certain investees, based on specific contractual conditions,

the substance of the analysis make it possible to conclude that the

funds received show characteristics of a liability and not necessarily

of sale of interests, as originally reported. Therefore, the funds

received started to be recognized in liabilities, and profit and loss

based on the construction-percentage of completion method.

Consequently, as at December 31, 2011, the balance of equity and

profit for the year was decreased by R$133,400.