1. Unconsolidated and Consolidated Quarterly Financial
Information BR Properties S.A. March 31, 2008 with Special Review
Report of Independent Auditors
2. BR PROPERTIES S.A. UNCONSOLIDATED AND CONSOLIDATED QUARTERLY
FINANCIAL INFORMATION March 31, 2008 Contents Special Review Report
of Independent Auditors
................................................................ 1
Quarterly Financial Information Balance Sheets
.....................................................................................................................
2 Statements of Operations
....................................................................................................
4 Notes to the Quarterly Financial
Information......................................................................
5
3. A free translation from Portuguese into English of Special
Review Report of Independent Auditors on quarterly financial
information prepared in Brazilian currency in accordance with the
accounting practices adopted in Brazil and specific standards
established by IBRACON, CFC and CVM SPECIAL REVIEW REPORT OF
INDEPENDENT AUDITORS The Board of Directors and Shareholders BR
Properties S.A. 1. We have performed a special review of the
quarterly financial information (ITR) of BR Properties S.A. (the
Company) and consolidated for the quarter ended March 31, 2008,
including the balance sheets, the related statements of operations,
the report on performance and accompanying notes, prepared under
the responsibility of management. 2. We conducted our review in
accordance with specific standards established by the Brazilian
Institute of Independent Auditors (IBRACON), together with the
Federal Accounting Council (CFC), which consisted principally of:
(a) inquiries of and discussions with persons responsible for the
Companys accounting, financial and operating areas as to the
criteria adopted in preparing the quarterly financial information,
and (b) review of the information and subsequent events that had or
might have had material effects on the financial position and
results of operations of the Company. 3. Based on our special
review, we are not aware of any material modification that should
be made to the quarterly financial information (ITR) referred to
above for it to be in conformity with the standards established by
the Brazilian Securities Commission (CVM), applicable to the
preparation of quarterly financial information, including CVM
Ruling No. 469/08. 4. As mentioned in Note 2.2, Law No. 11638 was
approved on December 28, 2007, effective as from January 1, 2008.
This law amended, revoked and introduced new provisions to Law No.
6404/76 (Brazilian Corporation Law), which will result in changes
in accounting practices adopted in Brazil. Although said Law is
already in force, the main changes introduced by it depend on
regulation by regulatory agencies to be fully applied by the
companies. As such, in this transition phase, CVM, through CVM
Ruling No. 469, dated May 2, 2008, allowed non- application of the
provisions of Law No. 11638/07 in preparing quarterly financial
information (ITR). In view of this, the accounting information
contained in the quarterly financial information (ITR) for the
quarter ended March 31, 2008 was prepared in accordance with
specific CVM rulings and does not consider the changes in
accounting practices introduced by Law No. 11638/07. So Paulo, May
2, 2008 ERNST & YOUNG Auditores Independentes S.S.
CRC-2SP015199/O-6 Antonio Humberto Barros dos Santos Accountant
CRC-1SP161745/O-3 1
4. A free translation from Portuguese into English of quarterly
financial information prepared in Brazilian currency in accordance
with the accounting practices adopted in Brazil BR PROPERTIES S.A.
BALANCE SHEETS March 31, 2008 and December 31, 2007 (In thousands
of reais) Parent Company Consolidated March 31, December 31, March
31, December 31, 2008 2007 2008 2007 Assets Current assets Cash and
cash equivalents (Note 4) 87 270,257 2,776 275,270 Short-term
investments (Note 4) 210,436 1,724 216,576 5,706 Rental receivable
- - 8,267 5,594 Advances for acquisition of real - 381 452 2,046
estate(Note 6) Recoverable taxes (Note 7) 1,508 1,879 1,774 2,008
Deferred income and social contribution taxes (Note 12) Prepaid
expenses 72 11 508 322 Other credits 5,589 4,527 5,237 767 217,692
278,779 235,590 291,713 Noncurrent assets Deferred income and
social contribution taxes (Note 12) - - - - - - - - Permanent
assets Investments in subsidiaries(Note 6) 463,883 403,973 - -
Goodwill on investment acquisition 8,080 8,080 9,487 9,487 Property
and equipment (Note 9) 517 510 1,079,811 963,649 472,480 412,563
1,089,298 973,136 Total assets 690,172 691,342 1,324,888 1,264,849
2
5. Parent Company Consolidated March 31, December 31, March 31,
December 31, 2008 2007 2008 2007 Liabilities and shareholders
equity Current liabilities Loans and financing (Note 10) - - 58,997
51,362 Trade accounts payable 349 905 938 1,048 Salaries and social
charges payable 863 2,730 1,077 2,740 Taxes payable 595 30 1,173
734 Provision for income and social contribution taxes taxable
profit as a 244 - 557 291 percentage of gross revenues Payables for
acquisition of real estate (Note 11) 464 939 13,832 19,937 Advance
- - 593 579 Other accounts payable 2 - 4,282 731 2,517 4,604 81,449
77,422 Noncurrent liabilities Provision for income and social
contribution taxes Revaluation - - 52,771 52,988 Loans and
financing (Note 10) - - 503,013 447,701 - - 555,784 500,689
Shareholders equity Capital: Subscribed capital (Note 14) 597,033
597,033 597,033 597,033 Revaluation reserve subsidiaries 102,438
102,859 102,438 102,859 Unpaid capital - - 699,471 699,892 699,471
699,892 Accumulated losses (11,816) (13,154) (11,816) (13,154)
687,655 686,738 687,655 686,738 Total liabilities and shareholders
equity 690,172 691,342 1,324,888 1,264,849 See accompanying notes.
3
6. BR PROPERTIES S.A. STATEMENTS OF OPERATIONS Three and
Twelve-month periods ended March 31, 2008 (In thousands of reais)
Parent Company Consolidated Twelve months Twelve months Three
months period ended Three months period ended period ended December
31, period ended December 31, March 31, 2008 2007 March 31, 2008
2007 Gross Revenues from sales: Lease - - 21,777 24,808 Services
rendered - 35 65 61 Taxes on revenues - (5) (2,657) (2,998) Net
revenue from rental - 30 19,185 21,871 Cost of leased properties
and services - - (3,011) (3,808) rendered Gross profit - 30 16,174
18,063 Operating income (expenses) General and administrative
expenses (2,644) (10,719) (3,954) (11,329) Financial income 5,936
5,644 6,097 5,909 Financial expenses (69) (1,735) (16,101) (25,520)
Equity pick-up in subsidiaries (1,153) (6,375) - - Operating and
pretax loss 2,068 (13,185) (13,958) (30,940) Non operating income
30 - 116 78 Income and social contribution taxes (Note 9) (761) -
(993) (355) Loss for the period (1,337) (13,154) (1,337) (13,154)
See accompanying notes. 4
7. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION March 31, 2008 (In thousands of reais) 1. Operations
The Company was incorporated on May 26, 2004 as a stock corporation
named Itarema Participaes S.A. On December 22, 2006, its corporate
name was changed to BR Properties S.A. (BR Properties or the
Company). On December 22, 2006, the Company received contributions
from shareholders, including new shareholders, amounting to R$
53,000. The major new shareholders were GP Investments Ltd, Private
Equity Partners A, LLC, Private Equity Partners B, LLC, Reic Brasil
Holding LLC, Castlerigg Latin American Investments LLC, Peter L.
Malkin Family 2000 LLC, Talisman Special Purpose Fund Ltd, Tudor
Proprietary Trading LLC and Tudor Brazil Investments LLC. The
shareholders established the Companys business plan and resolved
that it would operate as a holding, mainly engaged in the
acquisition, management, leasing and sale of commercial buildings
in Brazil, especially commercial buildings and office space, retail
stores and warehouses, provided they are assets already existing or
built to suit and the subject matter of lease agreements already
entered into. The Company started operations in April 2007, by
establishing Specific Purpose Companies (SPCs) to acquire
properties and have them rented under commercial lease agreements,
having invested approximately R$812 million until December 31,
2007. In the first 2008 quarter, the Company invested R$109 million
in the acquisition of the following commercial properties: On
January 17, 2008, the Company through its subsidiary BRPR VIII
Empreendimentos e Participaes Ltda., acquired the So Jos and Santo
Antnio properties, located in the city of So Paulo at Rua Verbo
Divino 1.207. On January 31, 2008, the Company, through its
subsidiary BRPR IX Empreendimentos e Participaes Ltda., acquired
the industrial warehouse Interbox, located in the city of Araucria
in the State of Paran. On January 31, 2008, the Company through its
subsidiary BRPR XIII Empreendimentos e Participaes Ltda. acquired
the Hochtief building, located in the city of So Paulo at Av. Egdio
de Souza Aranha, 145. 5
8. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 1.
Operations (Continued) On February 18, 2008, the Company through
its subsidiary BRPR XIV Empreendimentos e Participaes Ltda.
acquired the Ericsson industrial warehouse, located in the city of
So Jos dos Campos in the state of So Paulo. These properties are
rented for terms of 4 and 8 years, with the possibility of being
extended for equal periods. 2. Basis of Preparation and
Presentation of the Financial Statements 2.1. Quarterly Financial
Information The quarterly financial information was prepared in
accordance with accounting practices adopted in Brazil, the
accounting guidelines in Brazilian Corporation Law and the
accounting rules and procedures established by the Brazilian
Securities and Exchange Commission (CVM). The preparation of the
financial statements involves the use of accounting estimates. Such
estimates were based on objective and subjective aspects
considering managements judgment to determine the adequate amount
to be recorded in the financial statements. Significant items
subject to these estimates and assumptions include selection of
useful lives and recoverability of property and equipment, credit
risk analysis in determining the allowance for doubtful accounts,
as well as the analysis of other risks to determine other
provisions, including provision for contingencies and measurement
of financial instruments and other assets and liabilities at the
date of the financial statements. Settlement of transactions
involving these estimates may result in amounts significantly
different from those recorded in the financial statements due to
the uncertainties inherent in the estimate process. Income and
social contribution taxes were computed based on applicable
legislation at the balance sheet date. Assets and liabilities are
classified as current whenever their realization or settlement is
likely to occur within the following twelve months. Otherwise,
these will be shown as non-current. 6
9. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 2.
Basis of Preparation and Presentation of the Financial Statements
(Continued) 2.1. Quarterly Financial Information (Continued) The
consolidated quarterly financial information includes operations of
the Company and the following subsidiaries, in which its ownership
interest at March 31, 2008 is summarized as follows: Direct
ownership Consolidation interest criterion BRPR I Empreendimentos e
Participaes Ltda. 99.99% Full BRPR II Empreendimentos e Participaes
Ltda. 99.99% Full BRPR III Empreendimentos e Participaes Ltda.
99.99% Full BRPR IV Empreendimentos e Participaes Ltda. 99.99% Full
BRPR V Empreendimentos e Participaes Ltda. 99.99% Full BRPR VII
Empreendimentos e Participaes Ltda. 99.99% Full BRPR VIII
Empreendimentos e Participaes Ltda. 99.99% Full BRPR IX
Empreendimentos e Participaes Ltda. 99.99% Full BRPR X
Empreendimentos e Participaes Ltda. 99.99% Full BRPR XI
Empreendimentos e Participaes Ltda. 99.99% Full BRPR XII
Empreendimentos e Participaes Ltda. 99.99% Full BRPR XIII
Empreendimentos e Participaes Ltda. 99.99% Full BRPR XIV
Empreendimentos e Participaes Ltda. 99.99% Full BRPR XV
Empreendimentos e Participaes Ltda. 99.99% Full BRPR XVI
Empreendimentos e Participaes Ltda. 99.99% Full BRPR XVII
Empreendimentos e Participaes Ltda. 99.99% Full BRPR XVIII
Empreendimentos e Participaes Ltda. 99.99% Full BRPR XIX
Empreendimentos e Participaes Ltda. 99.99% Full BRPR XX
Empreendimentos e Participaes Ltda. 99.99% Full BRPR A
Administradora de Ativos Imobilirios Ltda. 99.99% Full The fiscal
years of subsidiaries included in consolidation are the same as
those of the Company, also accounting policies were consistently
applied by the consolidated companies. For consolidation purposes,
subsidiary BRPR I consolidates the operations of its wholly-owned
subsidiary BRPR VI. The main consolidation procedures are: -
Elimination of the balance of intercompany assets and liabilities;
- Elimination of participation in capital, reserves and retained
earnings of consolidated companies; - Elimination of the balances
of revenues and expenses resulting from intercompany transactions.
7
10. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 2.
Basis of Preparation and Presentation of the Financial Statements
(Continued) 2.2. Changes of Brazilian Corporation Law Law No.
11638/07 Law No. 11638, approved on December 28, 2007, amends,
revokes and introduces new provisions in Law No. 6.404, dated
December 15, 1976 and Law No. 6385, dated December 7, 1976. The
main objective of these changes is to update Brazilian Corporation
Law to allow convergence of accounting practices adopted in Brazil
with international accounting standards issued by the International
Accounting Standards Board IASB. On May 2, 2008, CVM issued CVM
Ruling No. 469, which regulates Law No. 11638/07. The requirements
of this new Law apply to financial statements for fiscal years
beginning on or after January 1, 2008, and these changes in the
financial statements for the year ending December 31, 2008 must be
applied retroactively to December 31, 2007 or to all periods
presented related to 2007, for purposes of disclosing and
presenting comparable financial statements for 2008. Among the main
changes in accounting standards introduced by the new law, we list
below only those which, based on a preliminary analysis made by
management of the new Law and CVM Ruling No. 469, may come to
impact the financial statements of the Company and its
subsidiaries: In business combinations between independent parties
involving effective transfer of controlling interest, assets and
liabilities of the company to be merged or resulting from merger or
spin-off shall be recorded at market value. As disclosed in Note 7
c, there was no amortization of goodwill balance of R$ 9,487 at
March 31, 2008, which will take place as from 2010 based on net
income projections prepared by management. In the quarter ended
March 31, 2008, the Company did not acquire shareholdings.
Eliminated the possibility of voluntary revaluation of assets and,
consequently the revaluation reserve, including periodic
revaluations provided for by CVM Resolution No. 183, dated June 19,
1995. In view of this, the existing revaluation reserve recorded
before effect of Law No. 11638, dated 2007, including of the
revaluation reserves of subsidiaries and affiliates, may be
maintained until their effective realization or reversed until the
end of the year in which Law No. 11638 became effective, i.e. 2008.
Company management intends to maintain the existing balances of the
revaluation reserves until their effective realization. 8
11. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 2.
Basis of Preparation and Presentation of the Financial Statements
(Continued) 2.2. Changes of Brazilian Corporation Law Law No.
11638/07 (Continued) Financial instruments, including derivatives
must be stated: (i) at market or equivalent value, when these are
for trading or available for sale; and (ii) at cost of acquisition
or issue value, restated according to legal or contractual
provisions, adjusted to probable realization value, when this is
lower. Company management believes that its accounting practices
related to financial investments are aligned with CVM requirements,
i.e. no significant effect is expected to result from adoption of
the referred to rule. In relation to derivatives, management is
waiting for regulation of the changes introduced by Law No. 11638
to conduct detailed analyses to allow proper recording and
disclosure relating to this matter. Noncurrent assets and
liabilities must be adjusted to present value. The remaining
balances shall be adjusted to present value only when the effect on
the quarterly financial information is significant. Company
management intends to develop detailed analyses to allow proper
recording and disclosure relating to the matter. Analyses are being
made to select rates and terms, as well as the accounts subject to
application of present value concept. Possibility of separately
recording transactions to meet tax legislation, and subsequently
the necessary adjustments to comply with accounting practices. The
Company is evaluating the impacts of this change on its internal
control structure in order to better define the practice to be
adopted. Rights related to assets destined to maintenance of
Company activities, including those resulting from operations
transferring to the Company benefits, risks and control over the
assets, such as commercial leasing must be recorded in permanent
assets. The Company believes that the referred to change will not
generate any significant impact on its financial statements.
Investments in affiliates in whose management significant influence
is exerted or ownership interest of 20% or more in voting capital
(and no longer in total capital) is held, in subsidiaries and in
other companies belonging to the same group or that are under
common control must be stated by the equity method. The concept of
significance was eliminated. Company management believes that the
referred to change will not generate any significant impact on the
quarterly financial information. 9
12. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 2.
Basis of Preparation and Presentation of the Financial Statements
(Continued) 2.2. Changes of Brazilian Corporation Law Law No.
11638/07 (Continued) Inclusion of the Statement of Value Added in
the quarterly financial information. Company management will
present the referred to statement of value added in its financial
statements for the year ending December 31, 2008. Considering that
the regulatory process will require issue of several new
pronouncements, Company management elected to apply the provisions
of Law No. 11638/07 only to the quarterly information for the last
2008 quarter. In view of this, the quarterly information for this
quarter and the prior periods presented for purposes of comparison
was prepared without considering the changes in accounting
practices provided for by the referred to law, as allowed by CVM.
Management is waiting for regulation of these and other matters by
the relevant regulatory agencies in order to have all the elements
necessary to determine, record and disclose all the effects of Law
No. 11638 on its quarterly financial information for the year
ending December 31, 2008. The Company intends to disclose in the
next quarters the impacts on shareholders equity and profit
resulting from implementation of the above measures based on its
analyses as well as additional interpretations from regulatory
agencies, including CVM Ruling No. 469. 3. Summary of Significant
Accounting Practices a) Determination of profit and loss Revenues
and expenses are recorded on the accrual basis. Revenue is not
recognized if significant uncertainty exists about its
collectibility. b) Cash and cash equivalents Include bank account
balances and short-term investments redeemable within 90 days from
the balance sheet date, at acquisition cost plus income earned to
the balance sheet date. c) Investments Investments in subsidiaries
are stated by the equity method. 10
13. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 3.
Summary of Significant Accounting Practices (Continued) d) Property
and equipment These are recorded at acquisition cost, plus
revaluation of buildings and land, recognized in December 2007 by
subsidiaries, based on the valuation report prepared by independent
appraisers. Depreciation is calculated by the straight-line method
at rates mentioned in Note 8. The revaluation was recognized
against the corresponding reserve in shareholders equity, net of
tax effects. The revaluation reserve will be transferred to
retained earnings upon depreciation and write-off of such revalued
assets. e) Goodwill Goodwill on investment acquisition is based on
future economic benefits arising therefrom and will be amortized
according to the yield curves of each business venture, based on
management projections, over no more than 10 years. The Company
periodically reviews its future profitability projections and
performs goodwill impairment tests. f) Liabilities Liabilities are
recognized in the balance sheet when the Company has a legal or
constructive obligation arising from past events, the settlement of
which is expected to result in an outflow of economic benefits. Due
to uncertainty with respect to the timing and amount of the outflow
of economic benefits required for settlement, certain liabilities
are estimated as incurred and recorded as a provision. Provisions
are recorded reflecting the best estimates of the risk involved. g)
Loans and financing Loans and financings are subject to monetary
variations and include respective charges to the balance sheet
date. h) Payables for acquisition of real estate These are
liabilities contractually established for acquisition of real
estate (land) plus underlying interest and monetary restatement,
when applicable. 11
14. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 3.
Summary of Significant Accounting Practices (Continued) i) Taxation
Revenues from lease of real estate properties are subject to the
following taxes and mandatory contributions at the following basic
tax rates: Taxes and Contributions Abbreviation Rates Social
Contribution Tax on Gross Revenue for Social Integration Program
PIS 1.65% Social Contribution Tax on Gross Revenue for Social
Security Financing COFINS 7.6% These charges are shown as
deductions from revenues from lease of real estate in the statement
of operations. Credits from non-cumulative PIS/Cofins are presented
in the statement of operations net of the cost of leased properties
and services rendered. The Company recorded taxable profit for the
quarter ended March 31, 2008 and set up a provision for income and
social contribution taxes, pursuant to current tax legislation
ruling on taxable profit computed on accounting records see Note
11. Income tax is determined on taxable profit at 15%, plus a 10%
surtax on profits in excess of R$ 240 in the period of 12 months,
while social contribution tax is calculated on taxable profit at 9%
and recognized on the accrual basis. As provided for in current tax
legislation, certain subsidiaries opted for taxable profit computed
as a percentage of gross revenues. 4. Cash and Cash Equivalents
Company Consolidated 03/31/2008 12/31/2007 03/31/2008 12/31/2007
Cash and banks 87 270,257 2,776 275,271 Short-term investments and
CDBs 210,436 1,724 216,576 5,705 210,523 271,981 219,352 280,976
These mainly refer to highly-liquid investments (debentures and
bank deposit certificates) with major banks, which are remunerated
at rates between 100.7% and 102.8% of Interbank Deposit Certificate
(CDI). 12
15. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 5.
Trade Accounts Receivable Consolidated 03/31/2008 12/31/2007 Rents
receivable 8,267 5,594 Expenses to be reimbursed 880 30 9,147 5,624
Under the agreements entered into with customers, rents are usually
received until the 10th business day of the following month.
Company management does not expect losses on the accounts
receivable, reason for which the Company did not record any
allowance for doubtful accounts. 6. Taxes Recoverable Company
Consolidated 03/31/2008 12/31/2007 03/31/2008 12/31/2007 Prepaid
income and social contribution taxes 583 583 689 599 PIS
recoverable 1 18 2 18 COFINS recoverable 1 80 7 81 Withholding
income tax IRRF 923 1,198 1,076 1,310 1,508 1,879 1,774 2,008 7.
Investments 31/03/2008 Company Consolidated Investments in
subsidiaries 463,883 - Goodwill 8,080 9,487 471,963 9,487 13
16. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 7.
Investments (Continued) a) Information on subsidiaries at March 31,
2008 Investments in subsidiaries stated by the equity method were
determined in accordance with the balance sheets at March 31, 2008.
Company Shares/units Revaluation Shareholders Income (loss)
Investment Subsidiaries of interest Capital reserve equity for the
year book value Equity pickup BRPR I Empreend. e Participaes Ltda.
98,741,500 98,741 36,327 129,762 (605) 129,762 (524) BRPR II
Empreend.e Participaes Ltda. 33,016,000 31,170 27,923 59,349 169
59,349 334 BRPR III Empreend. e Participaes Ltda. 23,785,000 23,785
14,380 38,468 243 38,468 336 BRPR IV Empreend. e Participaes Ltda.
66,896,620 66,896 4,334 70,434 229 70,434 255 BRPR V Empreend. e
Participaes Ltda. 56,869,000 56,869 1,128 58,087 199 58,087 214
BRPR VII Empreend. e Participaes Ltda. 22,194,400 22,194 5,985
27,773 (50) 27,773 (4) BRPR VIII Empreend. e Participaes Ltda.
15,001,000 15,001 - 14,365 (633) 14,365 (633) BRPR IX Empreend. e
Participaes Ltda. 10,083,771 22,283 12,361 22,283 (184) 22,283 (86)
BRPR X Empreend. e Participaes Ltda. 1,000 1 - - - - - BRPR XI
Empreend. e Participaes Ltda. 16,851,000 16,851 - 16,841 (9) 16,841
(9) BRPR XII Empreend. e Participaes Ltda. 1,000 1 - (1) (1) (1)
(1) BRPR XIII Empreend. e Participaes Ltda. 5,701,000 5,701 - 5,557
(143) 5,557 (143) BRPR XIV Empreend. e Participaes Ltda. 21,851,000
21,851 - 20,980 (869) 20,980 (869) BRPR XV Empreend. e Participaes
Ltda. 16,000 16 - 15 (1) 15 (1) BRPR XVI Empreend. e Participaes
Ltda. 1,000 1 - - (1) (1) (1) BRPR XVII Empreend e Participaes
Ltda. 1,000 1 - - (1) (1) (1) BRPR A Adm. de Ativos Imobilirios
Ltda 1,000 1 - (28) (21) (28) (21) 463,883 (1,154) Companys
interest in subsidiaries is described in Note 2. 14
17. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 7.
Investments (Continued) b) Information on the main asset, liability
and profit & loss items for subsidiaries at March 31, 2008
Assets Liabilities Non- Non- Current current Permanent Total
Current current Equity Total BRPR I Empreendimentos e Participaes
Ltda. 4,747 1,407 317,351 323,505 23,387 170,356 129,762 323,505
BRPRII Empreendimentos e Participaes Ltda. 1,606 - 153,051 154,657
8,682 86,626 59,349 154,657 BRPR III Empreendimentos e Participaes
Ltda. 3,508 - 94,745 98,253 7,453 52,332 38,468 98,253 BRPR IV
Empreendimentos e Participaes Ltda. 3,684 - 136,832 140,516 7,982
62,100 70,434 140,516 BRPR V Empreendimentos e Participaes Ltda.
4,445 - 158,525 162,970 12,704 92,179 58,087 162,970 BRPR VII
Empreendimentos e Participaes Ltda. 2,473 - 57,150 59,623 4,854
26,996 27,773 59,623 BRPR VIII Empreendimentos e Participaes Ltda.
852 - 40,267 41,119 2,760 23,994 14,365 41,119 BRPR IX
Empreendimentos e Participaes Ltda. 965 - 33,597 34,562 1,787
10,492 22,283 34,562 BRPR XI Empreendimentos e Participaes Ltda.
8,640 - 14,953 23,593 6,753 - 16,841 23,593 BRPR XII
Empreendimentos e Participaes Ltda. 1 - - 1 1 - (0) 1 BRPR XIII
Empreendimentos e Participaes Ltda. 446 - 14,298 14,744 741 8,446
5,557 14,744 BRPR XIV Empreendimentos e Participaes Ltda. 521 -
50,020 50,541 3,175 26,385 20,981 50,541 BRPR XV Empreendimentos e
Participaes Ltda. 23 - - 23 8 - 15 23 BRPR XVI Empreendimentos e
Participaes Ltda. 8 - - 8 8 - - 8 BRPR XVII Empreendimentos e
Participaes Ltda. 1 - - 1 1 - - 1 BRPR A Administradora de Ativos
Imobilirios Ltda. 53 - 11 64 92 - (28) 64 Statement of Operations
Taxes, rebates Income and Gross and costs of social revenues leased
Operating contribution Income (loss) from leases properties
expenses taxes for the period BRPR I Empreendimentos e Participaes
Ltda. 6,256 (1,569) (5,063) (229) (605) BRPRII Empreendimentos e
Participaes Ltda. 3,156 (842) (2,145) - 169 BRPR III
Empreendimentos e Participaes Ltda. 2,176 (602) (1,331) - 243 BRPR
IV Empreendimentos e Participaes Ltda. 2,882 (860) (1,793) - 229
BRPR V Empreendimentos e Participaes Ltda. 3,938 (992) (2,747) -
199 BRPR VII Empreendimentos e Participaes Ltda. 1,342 (437) (955)
- (50) BRPR VIII Empreendimentos e Participaes Ltda. 916 (190)
(1,359) - (633) BRPR IX Emprendimentos e Participaes Ltda. 450
(272) (360) (2) (184) BRPR XI Empreendimentos e Participaes Ltda. -
- (9) - (9) BRPR XII Empreendimentos e Participaes Ltda. - - (1) -
(1) BRPR XIIIEmpreendimentos e Participaes Ltda 240 (51) (332) -
(143) BRPR XIV Emprendimentos e Participaes Ltda. 420 (370) (919) -
(869) BRPR XV Empreendimentos e Participaes Ltda. - - (1) - (1)
BRPR XVI Empreendimentos e Participaes Ltda. - - (1) - (1) BRPR
XVII Empreendimentos e Participaes Ltda - - (1) - (1) BRPR A
Administradora de Ativos Imobilirios Ltda. 65 (9) (77) - (21)
15
18. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 7.
Investments (Continued) c) Goodwill Goodwill on acquisition Company
Goodwill on acquisition of DVR V Empreendimentos Imobilirios Ltda.
(i) 1,407 Goodwill on acquisition of Icomap Industria e Comrcio
Ltda. (ii) 8,080 9,487 (i) This company is the owner of two
industrial warehouses located in the city of Jandira, State of So
Paulo. After its acquisition by BR Properties, its corporate name
was changed to BRPR VI Empreendimentos e Participaes Ltda. (ii)
This company is the owner of Edifcio Icomap located in Rio de
Janeiro. After its acquisition by BR Properties, its corporate name
was changed to BRPR IX Empreendimentos Participaes Ltda. Goodwill
amortization will be recorded according to the net income
projections prepared by the Company, as shown below: Year ICOMAP
DVR 2010 4% 1% 2011 4% 3% 2012 6% 4% 2013 8% 7% 2014 to 2018 78%
85% Total 100% 100% Based on the projected discounted cash flows
arising from the assets maintained by these subsidiaries, Company
management did not identify any indication of goodwill impairment
recorded at March 31, 2008. 16
19. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 8.
Property and Equipment Company 03/31/2008 12/31/2007 Annual
depreciation Accumulated rate Cost depreciation Net Net Software
10% 16 (1) 15 5 Facilities 10% 94 (9) 85 82 Furniture and fixtures
10% 218 (19) 199 204 Data processing equipment 20% 265 (47) 218 219
593 (76) 517 510 Consolidated 03/31/2008 12/31/2007 Annual
Accumulated depreciation rate Cost depreciation Net Net Land -
256,956 - 256,956 228,067 Land revaluation - 44,681 - 44,681 44,681
Buildings * 667,288 (8,666) 658,622 579,225 Buildings revaluation *
111,166 (637) 110,529 111,166 Certificates of Additional
Construction Potential CEPAC (a) 8,494 - 8,494 - Software 10% 16
(1) 15 5 Facilities 10% 94 (8) 86 82 Furniture and fixtures 10% 218
(19) 199 204 Data processing equipment 20% 276 (47) 229 219
1,089,189 (9,378) 1,079,811 963,649 * Depreciation is calculated
considering the period in which properties are expected to be used
by the Company, for periods ranging from 33 to 50 years, over the
remaining useful life of the assets set out in the valuation
reports issued by independent appraisers. a) The Company acquired
Certificates of Additional Construction Potential CEPAC in the
amount of R$8,494 issued by the So Paulo Municipal Government to be
used, as applicable, to pay construction area in excess of the
standards established by municipal legislation on land use and
occupation. In using the certificates, the corresponding amount is
a component of the construction cost of commercial properties for
future lease. In the quarter ended March 31, 2008, the Company did
not enter into any obligation related to commercial leasing. At
December 31, 2007, the Company subsidiaries, based on the valuation
report issued by independent appraisers, recorded the revaluation
of buildings and land in the amount of R$155,847 against the
revaluation reserve in shareholders equity. Deferred income tax
liabilities, amounting to R$52,988 at December 31, 2007, were
recorded in Long- term payables, thereby reducing the balance of
that reserve in shareholders equity, and their realization is upon
disposal, sale and depreciation of the revalued assets. In the
quarter ended March 31, 2008, there was realization of R$637
through depreciation. 17
20. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 9.
Loans and Financing Consolidated Financial Final Purpose charges
maturity 03/31/2008 12/31/2007 IGP M+8.84% Acquisition - Condomnio
Edifcio Bonfliglioli p.a. 04/17/2017 12,198 12,067 Acquisition -
Condomnio Panamrica Park and Edifcio Plaza Centenrio TR+9.90% p.a.
05/25/2017 50,319 50,692 Acquisition - Condomnio do Edifcio Glria
(RJ), a building located at 1280 Avenida Piraporinha, Alphaville
Centro Empresarial e Industrial, a building located in Jundia, and
a set of commercial warehouses in Itapev TR+9.90% p.a. 08/17/2017
144,298 145,455 Acquisition of two properties in the city of
Jandira CDI+1.27% p.a. 08/17/2017 37,596 37,831 Acquisition of
Edifcio Henrique Schaumann TR+10.15% p.a. 10/17/2017 30,527 30,578
Acquisition of Edifcio Generalli(SP) and the Rio de Janeiro Stock
Exchange building TR+9.90% p.a. 08/17/2017 25,908 26,192
Acquisition of suites of Edifcio Paulista Park, Edifcio Berrini,
Condomnio Edifcio Isabella Plaza, 3rd floor of Edifcio Olimpic
Tower, Edifcio Joaquim Floriano, Condomnio Edifcio Midas, Edifcio
Number One and suite No. 31 of Edifcio Network Empresarial
TR+10.15% p.a. 08/17/2017 66,981 67,148 Acquisition of buildings
MV9, Sylvio Fraga, Raja Hills, and of Coveright industrial
warehouse TR+9.90% p.a. 12/20/2017 102,067 102,073 Acquisition of
buildings Avaya and Presidente Vargas TR+10.15% p.a. 09/18/2017
26,727 27,027 Acquisition of buildings Birmann 23 and Santo Antnio
IGPM+6% p.a 01/17/2018 26,710 - Acquisition of building Ericsson So
Jos dos Campos TR+10,15% p.a. 01/17/2018 29,520 - Acquisition of
building Hochtief TR+10,15% p.a. 01/17/2021 9,159 - 562,010 499,063
Portion maturing over the next 12 months (58,997) (51,362)
Noncurrent liabilities 503,013 447,701 Properties acquired were
used as a security (mortgage) for the repayment of the loans. Also,
guarantees were offered as chattel mortgage of units of interest in
borrowing subsidiaries and assignment in trust of credit rights
under lease agreements signed with the lessees. Long-term loans and
financing mature as follows: 2009 40,744 2010 41,247 2011 41,750
2012 47,786 2013 to 2017 331,486 503,013 18
21. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 10.
Payables for Acquisition of Real Estate Comprise payables for
acquisition of commercial properties, as follows: Consolidated
03/31/2008 12/31/2007 Jundia industrial building 3,000 3,000
Edifcio Glria 1,500 2,000 Jandira warehouses 1,740 1,740 Cidade
Jardim land 6,128 12,256 Interbox 1,000 - Edificio Icomap 464 940
13,832 19,936 11. Income and Social Contribution Taxes The Company
recorded taxable profit for the quarter ended March 31, 2008 and
did not record deferred income tax assets arising from tax losses
related to income and social contribution taxes, which will be
recognized only when there are consistent prospects of their
realization. Company 03/31/2008 Income before income and social
contribution taxes 2,116 Statutory rate 34% Income and social
contribution tax expense at statutory rate (719) Loss from equity
pickup (392) Offset of tax losses 331 Other adjustments 19 Income
and social contribution tax expense posted to the statement of
operations for the quarter (761) The expense with income and social
contribution taxes of R$ 993 recorded in the statement of
operations consolidated refers to R$ 761 company and R$ 231, in
Note 7(b), paid by certain subsidiaries computing taxable profit as
a percentage of gross revenues. At March 31, 2008, the balance of
income and social contribution tax losses was R$ 5,804. Deferred
income and social contribution tax liabilities, in the amount of
R$52,771 at March 31, 2008, were recorded on the revaluation
reserve of property and equipment items (land and buildings),
recorded by the subsidiaries, and their realization is based on
write-off and depreciation of such revalued assets. 19
22. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 12.
Contingencies The Company is not involved in judicial proceedings
of any nature, since it started operating in April 2007. 13.
Shareholders Equity a) Capital On December 22, 2006, a capital
increase was approved in the amount of R$ 53,960, which was paid-up
on January 8, 2007. On April 16, 2007, a capital increase was
approved and paid-up in the amount of R$ 1,080, with the issue of
500,000 common shares. On May 10, 2007, a capital increase was
approved in the amount of R$ 51,566 by means of private
subscription of shares. Relevant contribution took place on May 31,
2007. On June 19, 2007, the Board of Directors approved a capital
increase in the amount of R$97,140. Relevant contribution will take
place in July 2007. On July 27, 2007 the Board of Directors
approved a capital increase for the Company amounting to R$ 97,175,
which was paid up in August 2007. On December 18, 2007, the Board
of Directors approved a capital increase in the amount of R$26,079,
by means of private subscription of 13,956,935 common shares due to
the exercise of the subscription warrants granted to shareholder GP
Investments, Ltd. at the Annual Shareholders Meeting of December
22, 2006. On December 19, 2007, a capital increase was approved in
the amount of R$270,033, by means of private subscription, with
issue of 87,278,150 common shares, all registered, with no par
value, at the price of R$3.09 per share. 20
23. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 13.
Shareholders Equity (Continued) a) Capital (Continued) At March 31,
2008 paid up capital for R$ 597,033 comprises 240,804,449 common
shares, all registered, with no par value. Of the total paid up
capital, R$ 591,132 is comprised of shares owned by shareholders
domiciled abroad. At March 31, 2008 the limit of authorized capital
is 300,000,000 common shares. b) Stock option plan The Annual and
Special Shareholders Meeting held on April 16, 2007 approved the
Stock Option Plan, according to which the Board of Directors can
grant stock options to Company management and employees. The
options shall be no greater than 10% of total capital shares of the
Company existing on the date of grant, and the strike price shall
be the amount in local currency equivalent to US$ 1.00 (one U.S.
dollar). On July 17, 2007 and August 31, 2007 the first and the
second Stock Option Plans were approved for 2007, including the
number of options granted, the price and other conditions to
exercise the options. At March 31, 2008 none of the members of the
Companys Board of Directors or employees were entitled to these
plans, which benefited only the members of the Management Board. c)
Revaluation reserve At December 31, 2007, a Reserve revaluation in
subsidiaries was set up on the amounts recorded by subsidiaries,
net of tax effects. This reserve will be transferred to retained
earnings/ (accumulated losses) upon realization of the assets
revalued by the subsidiaries through their depreciation, write-offs
or disposals 21
24. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 14.
Net Financial Income 03/31/2008 Company Consolidated Financial
income Short-term investments 5,936 6,096 5,936 6,096 Financial
expenses Interest and charges on loans 47 14,873 IOF - 1,187 Others
22 41 69 16,101 15. Related Parties Company Assets 03/2008 12/2007
BRPR I Empreendimentos e Participaes Ltda. (ii) 23 - BRPR V
Empreendimentos e Participaes Ltda. (ii) 910 - BRPR IX
Empreendimentos e Participaes Ltda. (i) 4,229 4,125 BRPR XI
Empreendimentos e Participaes Ltda. (ii) 359 402 BRPR XII
Empreendimentos e Participaes Ltda. (ii) 1 - BRPR XIII
Empreendimentos e Participaes Ltda. (ii) 4 - BRPR XIV
Empreendimentos e Participaes Ltda. (ii) 1 - BRPR XV
Empreendimentos e Participaes Ltda. (ii) 1 - BRPR XVI
Empreendimentos e Participaes Ltda. (ii) 2 - BRPR XVII
Empreendimentos e Participaes Ltda. (ii) 1 - BRPR A Administradora
de Ativos Imobilirios Ltda. (ii) 49 - 5,580 4,527 (i) Represented
by advances for future capital increase made to subsidiary BRPR IX
Empreendimentos e Participaes Ltda. that will be used to increase
the subsidiarys capital over the year 2008. (ii) Corresponding to
intercompany current accounts, this balance refers substantially to
payments of expenses to be reimbursed in the short term. 16.
Financial Instruments and Risk Management The Company and its
subsidiaries engage in transactions involving financial instruments
with a view to financing its own activities or investing available
funds. Management of such instruments and related risks is
performed through defining conservative strategies aiming at
liquidity, profitability and reliance. 22
25. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 16.
Financial Instruments and Risk Management (Continued) The Company
mitigates its exposure to credit risk by making short-term
investments with leading financial institutions. Credit risk is
minimized since lease agreements are entered into with major
customers. As of March 31, 2008 there was no significant
concentration of credit risk with customers. The Company and its
subsidiaries have no significant debts, liabilities or costs
denominated in foreign currency. The Company operated with
derivatives in 2008 in order to obtain hedge against any possible
negative mismatching between Referential Rate TR variation, which
restates most of bank financing agreements, and the General Price
Index Market - IGP-M, which restates most lease agreements. The
hedging swap transaction was contracted in February 2008 with term
of 30 months and nominal value of R$ 73,487 thousand, which
resulted in temporary loss of R$47 recognized in the statement of
operations for the quarter ended March 31, 2008. The main financial
risks are as follows: Interest rate risk The Companys revenues and
expenses are affected by changes in interest rates because of the
impact of such changes on interest expenses in connection with
instruments of indebtedness with variable rates and interest income
on cash and short-term investment balances. Liquidity risk
Liquidity risk management is performed based on the Companys cash
flow, by maintaining a robust capital structure. Additionally, any
mismatching between assets and liabilities is consistently
monitored. 23
26. BR PROPERTIES S.A. NOTES TO THE QUARTERLY FINANCIAL
INFORMATION (Continued) March 31, 2008 (In thousands of reais) 17.
Insurance Coverage (unaudited) At March 31, 2008, insurance
retained by lessees is considered to be sufficient by Company
management to cover any losses. 18. Subsequent Events Subsequent to
March 31, 2008, the Company invested approximately R$90 million in
the acquisition of the following commercial properties. a) On May
8, 2008, BR Properties S/A, through its subsidiary BRPR XV,
acquired Edifcio Industrial Trisoft, located at Av. Prof. Vernon
Krieble, 455 in the city of Itapevi - SP. b) On April 16, 2008, BR
Properties S/A, through its subsidiary BRPR X, signed a purchase
and sale agreement for the acquisition of Edifcio Twin Towers,
located at Av. Raja Gabglia, 1753, in the district of Luxemburgo,
Belo Horizonte MG. 24