Rossi Residencial S.A. and Subsidiaries

(Convenience Translation into English from the

Original Previously Issued in Portuguese)

Rossi Residencial S.A.

and Subsidiaries

Interim Financial Information

For the Six-month Period Ended

June 30, 2014

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

INDEPENDENT AUDITOR’S REPORT

To the Shareholders, Directors and Management of

Rossi Residencial S.A.

São Paulo, SP

Introduction

We have reviewed the accompanying 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 June 30, 2014, which

comprises the balance sheet as at June 30, 2014 and the related income statement, statement of

comprehensive income, statement of changes in equity and statement of cash flows for the three-

and six-month period then ended, including the 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 guideline 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 and

Exchange 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

We conducted our review in accordance with Brazilian and international standards on review of

interim financial information (NBC TR 2410 and ISRE 2410 Review of Interim Financial

Information Performed by the Independent Auditor of the Entity, respectively). A review of interim

financial information consists of making inquiries, primarily of persons responsible for financial

and accounting matters, and applying analytical and other review procedures. A review is

substantially less in scope than an audit conducted in accordance with the standards on auditing and

consequently does not enable us to obtain assurance that we would become aware of all significant

matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion on the individual interim financial information prepared in accordance with CPC

21 (R1), 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

accompanying individual and consolidated interim financial information included in the interim

financial statements 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 interim financial statements referred to

above is not prepared, in all material respects, in accordance with IAS 34, considering technical

guideline 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 CFC, applicable

to the preparation of the Interim Financial Information (ITR), and presented in accordance with the

standards issued by the CVM.

Emphasis of matter

Revenue recognition

As described in Note 2, the individual and consolidated interim financial information has been

prepared in accordance with accounting practices adopted in Brazil (CPC 21 (R1)) and in

accordance with the International Financial Reporting Standards (“IFRSs”) applicable to real estate

development entities (IAS 34, for interim financial reporting), and also consider Technical

Instruction OCPC 04 issued by the CPC. This Technical Instruction addresses the recognition of

revenue by real estate development entities, including the matters related to the meaning and

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

estate units. Our conclusion is not qualified with respect to this matter.

Other matters

Statement of value added

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

for the six-month period ended June 30, 2014, 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 as supplemental information for IFRS that does not require the presentation of a

DVA. These statements were 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 relation to the individual and consolidated interim financial information in

accordance with CPC 21, taken as a whole.

São Paulo, August 12, 2014

DELOITTE TOUCHE TOHMATSU

Tarcisio Luiz dos Santos

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

BALANCE SHEET AS AT JUNE 30, 2014

(In thousands of Brazilian reais - R$)

ASSETS

Note

06/30/2014

12/31/2013

06/30/2014

12/31/2013

CURRENT ASSETS

Cash and cash equivalents

5

226,365

123,469

550,899

367,149

Securities

6

53,814

93,729

82,713

162,480

Trade receivables

7

126,700

183,431

1,754,037

1,950,729

Properties for sale

8

17,379

12,903

905,522

1,182,302

Other receivables

9

991,744

779,523

1,068,948

880,281

Total current assets

1,416,002

1,193,055

4,362,119

4,542,941

NONCURRENT ASSETS

Securities

6

3,780

170,258

112,751

260,076

Trade receivables

7

81,692

68,952

698,660

608,471

Properties for sale

8

33,728

28,902

534,118

317,361

Escrow deposits

17

41,668

39,486

55,001

52,010

Related parties

19

1,988,803

2,022,014

331,260

381,217

Investments

10

4,149,532

3,832,783

1,531,163

1,327,853

Property, plant and equipment

11

25,884

28,133

50,906

53,894

Intangible assets

12

55,766

46,967

57,426

49,070

Total noncurrent assets

6,380,853

6,237,495

3,371,285

3,049,952

TOTAL ASSETS

7,796,855

7,430,550

7,733,404

7,592,893

Parent

Consolidated

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

BALANCE SHEET AS AT JUNE 30, 2014

(In thousands of Brazilian reais - R$)

LIABILITIES

_Note

_06/30/2014

_12/31/2013

_06/30/2014

_12/31/2013

CURRENT LIABILITIES

Construction financing - real estate loans

13

317,648

691,483

1,074,956

1,234,947

Working capital loans

13

178,143

180,937

212,348

190,982

Debentures

14

309,932

308,761

309,932

308,761

Trade payables

16,940

20,940

95,605

86,518

Payables for purchase of land

15

4,668

6,253

248,904

211,795

Payroll and related charges

5,496

12,485

29,328

30,621

Taxes and contributions payable

7,149

1,788

43,256

30,669

Employees' and management's profit sharing payable

24

4,916

5,551

4,916

5,551

Advances from customers

15

428

13,059

82,396

124,795

Related parties

19

2,565,076

1,976,832

1,078,875

808,838

Deferred taxes and contributions

18

5,296

5,968

139,718

151,036

Other payables

16

15,128

3,009

99,288

55,407

Total current liabilities

3,430,820

3,227,066

3,419,522

3,239,920

NONCURRENT LIABILITIES

Construction financing - real estate loans

13

772,024

397,301

1,217,076

948,790

Working capital loans

13

127,945

178,291

148,256

185,306

Debentures

14

48,926

250,000

48,926

250,000

Payables for purchase of land

15

-

-

7,714

54,890

Taxes and contributions payable

17

21,356

21,356

25,554

25,554

Provision for risks

17

16,003

64,315

57,235

66,861

Provision for work guarantees

41,341

40,699

41,691

41,050

Deferred taxes and contributions

18

2,204

2,243

58,155

47,111

Equity deficit of investees and other

16

942,128

856,361

241,939

268,641

Total noncurrent liabilities

1,971,927

1,810,566

1,846,546

1,888,203

EQUITY

Capital

25

2,611,390

2,611,390

2,611,390

2,611,390

Treasury shares

25

(82,701)

(82,331)

(82,701)

(82,331)

Capital reserves

25

49,008

54,567

49,008

54,567

Accumulated losses

(183,589)

(190,708)

(183,589)

(190,708)

Total equity attributable to the owners of the Company

2,394,108

2,392,918

2,394,108

2,392,918

Noncontrolling interest

-

-

73,228

71,852

Total equity

2,394,108

2,392,918

2,467,336

2,464,770

TOTAL LIABILITIES AND EQUITY

7,796,855

7,430,550

7,733,404

7,592,893

Parent

Consolidated

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

INCOME STATEMENT

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2014

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

Note

06/30/2014 06/30/2013

06/30/2014

06/30/2013

NET REVENUES

20

34,102

63,540

974,637

1,048,845

COST OF PROPERTIES SOLD AND SERVICES PROVIDED

21

(4,412)

(64,056)

(781,409)

(846,137)

GROSS PROFIT (LOSS)

29,690

(516)

193,228

202,708

OPERATING INCOME (EXPENSES)

Administrative

22

(48,824)

(76,562)

(72,384)

(90,897)

Selling

22

(28,704)

(14,525)

(81,883)

(63,370)

Management fees

(2,000)

(2,106)

(2,000)

(2,106)

Depreciation and amortization

(3,300)

(3,194)

(3,347)

(3,264)

Equity in subsidiaries

10

26,312

165,122

27,503

77,349

Other operating income (expenses), net

22

53,772

(8,151)

15,317

(18,694)

PROFIT BEFORE FINANCE INCOME (COSTS)

26,946

60,068

76,434

101,726

FINANCE INCOME

23

51,095

51,385

85,224

73,066

FINANCE COSTS

23

(70,922)

(75,022)

(120,765)

(101,869)

PROFIT BEFORE TAXES

7,119

36,431

40,893

72,923

INCOME TAX AND SOCIAL CONTRIBUTION

18

Current

-

-

(19,684)

(19,512)

Deferred

-

-

553

(11,403)

PROFIT FOR THE PERIOD

7,119

36,431

21,762

42,008

Profit attributable to:

Company's owners

-

-

7,119

36,431

Noncontrolling interest

-

-

14,643

5,577

EARNINGS PER SHARE ATTRIBUTABLE TO THE

COMPANY'S SHAREHOLDERS (IN R$ PER SHARE)

Basic

25

0.0166

0.0870

Diluted

25

0.0162

0.0868

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

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2014

(In thousands of Brazilian reais - R$)

06/30/2014 06/30/2013 06/30/2014 06/30/2013

PROFIT FOR THE PERIOD

7,119

36,431

21,762

42,008

OTHER COMPREHENSIVE INCOME

-

-

-

-COMPREHENSIVE INCOME FOR THE PERIOD

7,119

36,431

21,762

42,008

Comprehensive income attributable to:

Company's owners

-

-

7,119

36,431

Noncontrolling interest

-

-

14,643

5,577

Consolidated

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

Parent

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

STATEMENT OF CHANGES IN EQUITY

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2014

(In thousands of Brazilian reais - R$)

Treasury

Capital

Accumulate

d

Noncontrolling

Consolidated

Note

Capital

shares

reserve

losses

Equity

interest

equity

BALANCES AS AT DECEMBER 31, 2012

2,573,526

(80,870)

37,222

(231,766)

2,298,112

94,131

2,392,243

Capital increase

26

36,804

-

-

-

36,804

-

36,804

Profit for the period

26

-

-

-

36,431

36,431

5,577

42,008

Capital decrease by noncontrolling shareholders

-

-

-

-

-

(26,306)

(26,306)

Share issuance goodwill

-

-

17

-

17

-

17

Share issuance costs

26

(657)

-

-

-

(657)

-

(657)

Treasury shares

-

(406)

-

-

(406)

-

(406)

Share-based compensation

26

-

-

8,902

-

8,902

-

8,902

BALANCES AS AT JUNE 30, 2013

2,609,673

(81,276)

46,141

(195,335)

2,379,203

73,402

2,452,605

BALANCES AS AT DECEMBER 31, 2013

2,611,390

(82,331)

54,567

(190,708)

2,392,918

71,852

2,464,770

Profit for the period

-

-

-

7,119

7,119

14,643

21,762

Capital decrease by noncontrolling shareholders

-

-

-

-

-

(6,617)

(6,617)

Dividends distributed to noncontrolling shareholders

-

-

-

-

-

(6,650)

(6,650)

Treasury shares

26

-

(370)

-

-

(370)

-

(370)

Share-based compensation

26

-

-

(5,559)

-

(5,559)

-

(5,559)

BALANCES AS AT JUNE 30, 2014

2,611,390

(82,701)

49,008

(183,589)

2,394,108

73,228

2,467,336

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

STATEMENT OF CASH FLOWS

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2014

(In thousands of Brazilian reais - R$)

06/30/2014

06/30/2013

06/30/2014

06/30/2013

'

CASH FLOW FROM OPERATING ACTIVITIES

Profit before income tax and social contribution

7,119

36,431

40,893

72,923

Adjustments not representing cash inflow or outflow:

Depreciation and amortization

3,300

3,194

6,406

7,706

Allowance for doubtful debts

(1,618)

(4,201)

(1,617)

(4,201)

Provisions for risks

(48,312)

4,781

(9,626)

4,781

Provision for work guarantees

644

(2,197)

644

(2,197)

Accrued share-based compensation

(5,559)

8,902

(5,559)

8,901

Accrued profit sharing

-

5,643

-

5,643

Equity in subsidiaries

(26,312)

(165,122)

(27,503)

(77,349)

Gain on investments sold

(15,983)

(11,887)

(10,685)

5,048

Goodwill realization

16,230

14,718

9,135

8,252

Loss on sale of property, plant and equipment and intangible assets

356

-

357

-Deferred taxes and contributions

(712)

389

279

5,626

Financial interest and charges, net

(22,487)

(3,614)

(26,435)

(93,060)

(93,334)

(112,963)

(23,711)

(57,927)

Changes in operating assets and liabilities:

Decrease in trade receivables

101,313

31,720

198,096

132,426

Decrease (increase) in properties for sale

10,189

63,216

170,663

51,327

Decrease (increase) in other credits, net

of items under liabilities

(6,141)

(210,559)

(36)

(139,995)

Decrease (increase) in other assets

(2,182)

(1,470)

(2,991)

(2,684)

Decrease in payables for purchase of land

(1,585)

(10,174)

(10,067)

(42,745)

Increase (decrease) in taxes and contributions

5,361

1,521

3,657

(12,413)

Increase (decrease) in advances from customers

(12,631)

1,328

(42,399)

(21,891)

Decrease in employees' and management profit sharing payable

(635)

(5,531)

(635)

(5,531)

Increase (decrease) in other liabilities

(10,989)

1,759

7,791

23,843

Other

Interest

(91,465)

-

(485,038)

-Income tax and social contribution paid

-

-

(10,754)

(7,896)

Net cash provided by (used in) operating activities

(102,099)

(241,153)

(195,424)

(83,486)

CASH FLOW FROM INVESTING ACTIVITIES

Acquisition of investments

(187,489)

(335,987)

(174,269)

(246,506)

Dividends received

42,661

104,343

40,729

65,536

Redemption of securities

206,393

470,752

227,092

444,632

Purchase of property, plant and equipment items

(135)

(3,576)

(2,502)

(1,526)

Acquisition of software

(10,071)

(7,540)

(10,071)

(7,403)

Net cash provided by investing activities

51,359

227,992

80,979

254,733

CASH FLOW FROM FINANCING ACTIVITIES

Related-party transactions

418,405

272,064

136,320

355,436

Dividends paid

-

-

-

(17,110)

Capital increase

-

36,804

-

36,804

Share issuance goodwill

-

17

-

17

Share issuance costs

-

(23,889)

-

(23,889)

Treasury shares

(370)

(406)

(370)

(406)

Noncontrolling interest

-

-

(13,267)

(26,306)

Borrowings and financing:

Funds raised

288,343

19,347

732,839

375,075

Repayment

(353,306)

(246,740)

(357,891)

(890,442)

Debentures:

Repayment

(199,436)

(135,537)

(199,436)

(135,537)

Net cash provided by (used in) financing activities

153,636

(78,340)

298,195

(326,358)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

102,896

(91,501)

183,750

(155,111)

CASH AND CASH EQUIVALENTS

At the beginning of period

123,469

351,820

367,149

776,893

At the end of period

226,365

260,319

550,899

621,782

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

102,896

(91,501)

183,750

(155,111)

Consolidated

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

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

STATEMENT OF VALUE ADDED

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2014

(In thousands of Brazilian reais - R$)

06/30/2014 06/30/2013

06/30/2014

06/30/2013

REVENUES

Sale of properties and services provided

36,503

68,809

999,540

1,079,152

Write-off of allowance for doubtful debts

1,618

4,201

1,618

4,201

38,121

73,010

1,001,158

1,083,353

INPUTS FROM THIRD PARTIES

Cost of sales

(30,526) (8,075)

(812,271)

(672,147)

Materials, energy, third-party services and other

(22,751) (25,036)

(28,326)

(58,654)

(53,277) (33,111)

(840,597) (730,801)

GROSS VALUE ADDED

(15,156) 39,899

160,561 352,552

RETENTIONS

Depreciation and amortization

(3,300) (3,194)

(6,406)

(7,706)

Realization of goodwill

(16,230) (14,718)

(9,135)

(8,252)

Wealth created by the entity

(19,530)

21,987

(15,541)

336,594

WEALTH RECEIVED IN TRANSFER

Share of profits of investess

26,312

165,122

27,503

77,349

Finance income

51,095

51,385

85,224

73,066

Other

54,501

38

16,573

38

131,908

216,545

129,300

150,453

TOTAL WEALTH FOR DISTRIBUTION

97,222

238,532

274,320

487,047

Wealth distributed

Personnel

Direct compensation

17,654

41,879

81,094

92,550

Benefits

4,025

6,965

9,608

16,052

F.G.T.S.

1,935

3,108

5,785

6,372

23,614

51,952

96,487

114,974

Taxes, rates and contributions

Federal

7,710

14,725

32,069

78,541

State

391

-

554

663

Municipal

819

745

14,134

19,862

8,920

15,470

46,757

99,066

Lenders and lessors

Interest

53,497

130,149

104,303

225,337

Rental

4,072

4,530

5,011

5,662

57,569

134,679

109,314

230,999

Shareholders

Retained earnings

7,119

36,431

7,119

36,431

Noncontrolling interest in retained earnings

-

-

14,643

5,577

7,119

36,431

21,762

42,008

97,222

238,532

274,320

487,047

Parent

Consolidated

ROSSI RESIDENCIAL S.A. AND SUBSIDIARIES

NOTES TO THE INTERIM FINANCIAL INFORMATION

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2014

(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 Special Purpose Entities (SPEs) and consortia.

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 interim financial information of Rossi Residencial for the

six-month period ended June 30, 2014 was authorized for disclosure by the Board of Directors on

August 12, 2014, in accordance with Article 25, VI, of CVM Instruction 480/09.

2. 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

CPC 21 (R1) - Interim Financial Reporting, which contemplates OCPC 04 on the

application of technical interpretation ICPC 02 to real estate development companies

in Brazil issued by the Accounting Pronouncements Committee (CPC), in line with 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 and international financial reporting standards,

as set out in CPC 26 (R1) and IAS 1 - Presentation of Financial Statements issued by

International Accounting Standards Board (IASB) (“IFRSs”), which contemplates

guidance OCPC 04 on the application of technical interpretation ICPC 02 to real estate

development companies in Brazil issued by the Accounting Pronouncements

Committee (CPC) and approved by the Brazilian Securities Commission (CVM) and

the Federal Accounting Council (CFC), identified as “Consolidated”.

The accounting practices adopted in Brazil comprise the policies set out in Brazilian

Corporate Law and the technical pronouncements, instructions, and interpretations

issued by the Accounting Pronouncements Committee (“CPC”) and approved by the

Federal Accounting Council (“CFC”) and the Brazilian Securities Commission

(“CVM”).

In the individual interim financial information, investments in subsidiaries, joint

ventures and associates are stated under the equity method of accounting in accordance

with the legislation prevailing in Brazil. Accordingly, this individual interim financial

information cannot be considered fully compliant with IFRSs, which requires the

measurement of such investments in the separate financial statements of the parent

company at fair value or at cost.

Since there is no difference between the consolidated equity and the consolidated profit

or loss for the period attributable to the Parent’s owners recorded in the consolidated

interim financial information prepared in accordance with IFRSs and the accounting

practices adopted in Brazil, and the Parent’s equity and profit or loss for the period

recorded in the individual interim financial information prepared in accordance with

accounting practices adopted in Brazil, the Company elected to present the individual

and consolidated interim financial information as a single set, in the side-by-side format.

2.2. Basis of preparation

The interim financial information has been prepared taking into consideration the

historical cost basis 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 areas in which the assumptions and

estimates are significant for the interim financial information are disclosed in Note 3.

The significant accounting policies applied in preparing the individual and consolidated

interim financial information are consistent with those described in Note 2 to the

Company’s financial statements for the year ended December 31, 2013. The accounting

policies were applied consistently to all reporting periods.

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.

2.3. Revised standards and interpretations

a) The new and revised International Financial Reporting Standards (IFRSs) below,

effective for annual periods beginning on or after January 1, 2014, were adopted in

this interim financial information. The adoption of these new and revised IFRSs did

not have any significant impacts on the amounts reported and/or disclosed for the

current and prior years/periods.

IFRS/IAS

Description

IFRIC 21

Levies

b) New standards and interpretations already issued but not yet adopted since they are

effective beginning on or after January 1, 2015:

IFRS 9

Financial Instruments

Amendments

to IFRS 9

and

IFRS 7

Mandatory Application Date of IFRS 9 and Transition Disclosures

IFRS 15

Revenue from Contracts with Customers (*)

(*) On May 28, 2014, the International Accounting Standards Board (IASB) issued IFRS 15 –

Revenue from Contracts with Costumers to clarify and converge the recognition of revenue. Under the

International Financing Reporting Standards (IFRS), the standard will become effective on or after

January 1, 2017.

The Company’s management does not expect any significant impacts arising from the

application of these new standards and interpretations, except for IFRS 15 whose

impacts were not analyzed by the Company.

3. CRITICAL ACCOUNTING JUDGMENTS AND KEY ESTIMATES AND ASSUMPTIONS

The preparation of individual and consolidated interim financial information requires the use of

estimates to account for certain assets, liabilities and other transactions. The interim financial

information includes, therefore, several estimates related to the selection of useful lives of

property, plant and equipment, the provisions for risks, the determination of provisions for

taxes, the budgeted costs and progress of construction works, the allocation of selling expenses

and other similar provisions. Actual results could differ from those estimates.

The main estimates are as follows:

a) Revenue from property development and sale

Revenue and costs related to uncompleted real estate units sold are recognized in profit or

loss during construction period, and the following procedures are adopted:

i.

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

consummated through the significant transfer of risks and rights, regardless of the

term for receipt of the amount established by contract.

ii.

In sales of uncompleted units, the following procedures are met:

the incurred cost of units sold, including cost of land and other expenditures

directly related to the cost of the real estate unit, is fully recognized in profit or

loss;

The percentage of cost incurred (including land) is determined in relation to its

total budgeted cost, and such percentage rate is applied on revenue from units

sold, which is adjusted based on the terms and conditions of sales agreements,

therefore resulting in the amount of revenue to be recognized directly

proportionately to cost (“POC criterion”); and

The amounts of sales revenues, including inflation adjustment and adjustment to

present value recognized in excess of amounts effectively received from

customers are accounted for in current assets or noncurrent assets, in line item

“Trade receivables”. If amounts received are higher than the reported amounts of

revenues, these are accounted for in line item “Advances from customers”.

b) Construction services

Revenues from real estate services are recognized to the extent services are provided, and

are related to third-party construction management activities.

c) Impairment of assets

In order to determine whether goodwill arising from business acquisitions is impaired it is

necessary to estimate the cash generation amount to which goodwill was allocated. Fair

value is calculated based on estimates of expected future cash flows at a discount rate that

represents the Company’s average capital cost.

Goodwill arises on the acquisition of investees and is allocated to the appreciation of assets.

In the consolidated interim financial information, goodwill is reclassified to the line items

of the underlying acquired assets.

d) Share-based compensation

The provisions for stock options compensation and the restricted stock option plan are

recorded at the fair value of the options, which is calculated by the Company using the

Black & Scholes model. Beginning July 2014, the Company will calculate new Stock

Option Programs and Restricted Stock Option Plan using the “Binomial” method.

e) Fair value of financial instruments

Financial instruments are initially measured at fair value. The Company determines the

classification of its financial instruments when it becomes a party to the contractual

provisions of the financial instrument.

f) Provisions for risks

The Company recognizes a provision for civil and labor claims. The likelihood of loss is

assessed based on available evidences, the hierarchy of laws, jurisprudence available, most

recent court decisions, their relevance within the legal system, and the assessment made by

the outside legal counsel.

Provisions are reviewed and adjusted so as to consider changes in circumstances, such as

applicable statute of limitations, conclusions of tax audits or additional exposures identified

based on new matters or court rulings.

g) Budgeted costs of real estate projects

Total budgeted costs are reviewed periodically during construction, and the impact of such

review on estimates affects the Company’s profit or loss, as prescribed in CPC 23 –

Accounting Policies, Changes in Accounting Estimates and Errors.

4. FINANCIAL INSTRUMENTS

a) Analysis of financial instruments

The Company and its investees conduct transactions with financial instruments to fund their

activities or invest available funds. These risks are managed based on conservative

strategies aimed at liquidity, profitability and security. The control policy consists of

permanently monitoring contracted rates compared to market rates.

Transactions are not conducted with financial instruments for speculative purposes.

Financial instruments are recognized only as from the date in which the Company becomes

a party to the underlying contract. When recognized, they are initially recorded at fair

value, plus transaction costs directly attributed to their acquisition or issuance (where

applicable). They are then measured at the end of each reporting period, in accordance with

the rules established for each type of classification of financial assets and liabilities.

The Company restricts its exposure to credit risks related to banks and cash and cash

equivalents by making its investments in financial institutions with credit capacity. The

credit risks on trade receivables are managed through specific credit analysis rules and

individual exposure limits by customer.

Financial instruments are recorded in balance sheet accounts and are represented by

short-term investments, borrowings and financing, debentures and treasury shares, the estimated

fair values of which are substantially similar to their carrying amounts, except for treasury

shares. Additionally, trade receivables, when referring to completed projects and those in

progress, may be traded in securitization and/or assignment transactions.

Through June 30, 2014, no derivative transactions were contracted.

b) Categories of financial instruments

Category

06/30/2014

12/31/2013

06/30/2014

12/31/2013

Financial assets

Cash and cash equivalens

Loans and receivables

226,365

123,469

550,899

367,149

Securities

Loans and receivables

57,594

263,987

195,464

422,556

Trade receivables

Loans and receivables

208,392

252,383

2,452,697

2,559,200

Related parties

Loans and receivables

1,988,803

2,022,014

331,260

381,217

Business partners

Loans and receivables

811,223

630,811

729,974

550,946

Financial liabilities

Constuction financing - real estate loans

Other financial liabilities

1,089,672

1,088,784

2,292,032

2,183,737

Working capital loans

Other financial liabilities

306,088

359,228

360,604

376,288

Debentures

Other financial liabilities

358,858

558,761

358,858

558,761

Trade payables

Other financial liabilities

16,940

20,940

95,605

86,518

Payables for acquisition of land

Other financial liabilities

4,668

6,253

256,618

266,685

Related parties

Other financial liabilities

2,565,076

1,976,832

1,078,875

808,838

Other payables

Other financial liabilities

195,965

214,583

225,073

223,221

Parent

Consolidated

Financial assets and financial liabilities described above, which are stated at amortized cost,

are adjusted for inflation based on the indices and interest rates contracted up to the balance

sheet date, and do not differ significantly from market value.

c) Risk factors that may affect the Company’s and its subsidiaries’ business

In conducting its operations, the Company is exposed to the following main risks:

Liquidity risk

The controls of the Company’s liquidity and cash flows are monitored on a daily basis to

ensure that the generation of operating cash and early fundraising, if necessary, are

sufficient to pay its schedule of commitments.

Credit risk

The Company takes into consideration in assessing the credit risks of trade receivables, the

collateral transfers made, since its portfolio is collateralized by the sold properties, but the

amount of the effective risk of probable losses is recognized as impairment loss (Note 7).

Market risk

(i) Interest rate and inflation rate risk - the interest rate risk arises from the debt portion

pegged to the TR, a managed prime rate, the Interbank Deposit Rate (CDI) and the

National Construction Cost Index (INCC), short-term investments pegged to the CDI

and trade payables indexed to the INCC and the General Market Price Index (IGP-M),

which may adversely affect finance income or costs if there are unfavorable changes in

the interest and inflation rates. The Company defined three scenarios (probable,

possible and remote) for simulation. Management has set in the probable scenario the

rates disclosed by BM&FBOVESPA, and the possible and remote scenarios showed a

depreciation of 25% and 50%, respectively, of the variables. The basis used is the

amount in the notes corresponding to cash and cash equivalents, securities, trade

receivables, borrowings, financing, debentures, trade payables and payables for the

acquisition of land.

Risk factor

Base

Probable

scenario

Possible

scenario

Remote

scenario

Financial assets:

Cash and cash equivalents:

CDBs

CDI

201,372

17,719

13,289

8,860

Savings account

TR

2,519

16

12

8

Securities:

Investment funds - DI

CDI

25,337

2,229

1,672

1,115

CDBs

CDI

30,255

2,662

1,997

1,331

Capitalization bonds

TR

2,003

13

10

6

Trade receivables:

Units under construction

INCC

288

21

15

10

Completed units

IGP-M

208,104

12,999

9,749

6,499

Business partners

CDI

811,223

71,381

53,536

35,691

Financial liabilities:

Construction financing - real estate loans

TR

1,089,672

107,022

107,190

107,358

Working capital loans

CDI

293,887

25,860

32,325

38,790

Credit assignment

INCC and IGP-M

12,201

873

1,092

1,310

Payables for acquisition of land

INCC and IGP-M

4,668

334

418

501

Debentures

CDI and TR

358,858

27,700

30,028

32,356

Other payables

INCC

195,965

14,027

17,534

21,040

Risk factor

Base

Probable

scenario

Possible

scenario

Remote

scenario

Financial assets:

Cash and cash equivalents:

CDBs

CDI

229,049

20,155

15,116

10,077

Savings account

TR

28,295

179

134

90

Securities:

Investment funds - DI

CDI

25,869

2,276

1,707

1,138

Repurchase transactions - DI

CDI

8,000

704

528

352

CDBs

CDI

99,537

8,759

6,569

4,379

Capitalization bonds

TR

2,003

13

10

6

Treasury notes - LTFs and NTNs

SELIC

37,233

3,058

2,294

1,529

Trade receivables:

Units under construction

INCC

1,736,730

124,313

93,235

62,157

Completed units

IGP-M

715,967

44,722

33,541

22,361

Business partners

CDI

729,974

64,232

48,174

32,116

Financial liabilities:

Construction financing - real estate loans

TR

2,292,032

225,112

225,465

225,818

Working capital loans

CDI

292,914

25,774

32,218

38,661

Credit assignment

INCC and IGP-M

67,690

4,845

6,056

7,268

Payables for acquisition of land

INCC and IGP-M

256,618

18,368

22,961

27,553

Debentures

CDI and TR

358,858

27,700

30,028

32,356

Other payables

INCC

225,073

16,111

20,138

24,166

Consolidated

Due to the nature, complexity and segregation of one single variable, estimates

presented may not fairly represent the amount of loss, if the related variable shows the

depreciation presented.

(ii) Currency risk – the Company does not conduct foreign currency-denominated

transactions.

(iii) Derivative transactions - the Company does not conduct derivative and similar risk

transactions.

5. CASH AND CASH EQUIVALENTS

Cash and cash equivalents are represented basically by banks, investments in private securities

(Bank Certificates of Deposit, or CDBs), issued or managed by financial institutions, all with

average yield equivalent to 98% to 101% of the DI CETIP CDI rate.

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.

06/30/2014

12/31/2013

06/30/2014

12/31/2013

Cash and banks

22,474

85,337

293,555

268,034

Short-term investments:

CDBs and other investments (*)

201,372

35,496

229,049

75,347

Savings account

2,519

2,636

28,295

23,768

226,365

123,469

550,899

367,149

Parent

Consolidated

6. SECURITIES

06/30/2014

12/31/2013

06/30/2014

12/31/2013

Current:

Held-for-trading securities (a)

-

26,450

8,053

75,094

Loans and receivables (b)

53,814

67,279

74,660

87,386

53,814

93,729

82,713

162,480

Noncurrent:

Loans and receivables (b)

3,780

170,258

112,751

260,076

57,594

263,987

195,464

422,556

Parent

Consolidated

a) Held-for-trading securities

Held-for-trading securities consist basically of exclusive investment fund units held at

financial institutions. They are represented by fixed and floating government bonds

indexed, to the Selic rate.

Funds are marked-to-market and changes in fair value are reflected in the income (loss)

from operations.

b) Loans and receivables

The amounts recorded approximate their fair values and are classified as loans and

receivables, and, accordingly, are accounted for under the “amortized cost” method, i.e.,

interest is recognized based on the effective rate of each instrument, except for exclusive

funds classified as financial assets at fair value through profit or loss. These securities yield

interest from 96.89% to 99.78% of the DI CETIP CDI. The balance of these investments is

R$25,869 as at June 30, 2014 (R$35,603 as at December 31, 2013).

7. TRADE RECEIVABLES

Represented by:

06/30/2014

12/31/2013

06/30/2014

12/31/2013

Units under construction

69,015

69,401

1,748,894

1,492,662

Adjustments to present value

(443)

(410)

(12,164)

(12,108)

Sale of land

30,170

45,574

66,838

83,613

Completed units

132,844

162,630

672,358

1,019,879

Allowance for doubtful debts

(23,194)

(24,812)

(23,229)

(24,846)

208,392

252,383

2,452,697

2,559,200

Current

126,700

183,431

1,754,037

1,950,729

Noncurrent:

81,692

68,952

698,660

608,471

Parent

Consolidated

The adjustment to present value was calculated on the receivables from the sale of units under

construction, using the average discount rate of 3.44% per year as at June 30, 2014 (3.43% per

year as at December 31, 2013).

The aging list of trade receivables is as follows:

06/30/2014

12/31/2013

06/30/2014

12/31/2013

Past-due:

Up to 60 days

10,365

12,724

133,285

238,625

61 to 90 days

3,184

3,965

27,609

75,400

91 to 180 days

5,486

10,483

68,808

84,527

Above 181 days

21,473

79,387

160,648

309,509

40,508

106,559

390,350

708,061

Current:

Up to 1 year

74,502

76,872

1,349,137

1,242,668

2 to 3 years

45,229

29,941

473,894

333,717

Above 3 years

48,153

39,011

239,316

274,754

167,884

145,824

2,062,347

1,851,139

208,392

252,383

2,452,697

2,559,200

Parent

Consolidated

The changes in the allowance for doubtful debts are as follows:

Parent

Consolidated

Balance as at December 31, 2013

24,812

24,846

Additions

3,710

3,710

Reversals

(5,328)

(5,327)

Balance as at June 30, 2014

23,194

23,229

Receivable assignment

The Company’s receivable assignment with financial institutions are guaranteed against future

losses. Therefore, the Company fully maintained the balance of these assignments in trade

receivables and recognized the amount received in this transfer as receivable assignment in

liabilities. As at June 30, 2014, the carrying amount of the related liability is R$12,201 in the

Parent and R$67,690 in consolidated (R$16,228 in the Parent and R$28,329 in consolidated as

at December 2013), pursuant to Note 13.