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. 1
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 Company’s 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.
São Paulo, May 2, 2008
ERNST & YOUNG
Auditores Independentes S.S.
CRC-2SP015199/O-6
Antonio Humberto Barros dos Santos
Accountant CRC-1SP161745/O-3
4. 2
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,
2008
December 31,
2007
March 31,
2008
December 31,
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
estate(Note 6)
- 381 452 2,046
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
5. 3
Parent Company Consolidated
March 31,
2008
December 31,
2007
March 31,
2008
December 31,
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
percentage of gross revenues
244 - 557 291
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.
6. 4
BR PROPERTIES S.A.
STATEMENTS OF OPERATIONS
Three and Twelve-month periods ended March 31, 2008
(In thousands of reais)
Parent Company Consolidated
Three months
period ended
March 31, 2008
Twelve months
period ended
December 31,
2007
Three months
period ended
March 31, 2008
Twelve months
period ended
December 31,
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
rendered
- - (3,011) (3,808)
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.
7. 5
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
Participações 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 Company’s 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 Participações Ltda., acquired the São José and Santo Antônio
properties, located in the city of São Paulo at Rua Verbo Divino 1.207.
On January 31, 2008, the Company, through its subsidiary BRPR IX Empreendimentos
e Participações Ltda., acquired the industrial warehouse Interbox, located in the city of
Araucária in the State of Paraná.
On January 31, 2008, the Company through its subsidiary BRPR XIII
Empreendimentos e Participações Ltda. acquired the Hochtief building, located in the
city of São Paulo at Av. Egídio de Souza Aranha, 145.
8. 6
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 Participações Ltda. acquired the Ericsson industrial warehouse,
located in the city of São José dos Campos in the state of São 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 management’s 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.
9. 7
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
interest
Consolidation
criterion
BRPR I Empreendimentos e Participações Ltda. 99.99% Full
BRPR II Empreendimentos e Participações Ltda. 99.99% Full
BRPR III Empreendimentos e Participações Ltda. 99.99% Full
BRPR IV Empreendimentos e Participações Ltda. 99.99% Full
BRPR V Empreendimentos e Participações Ltda. 99.99% Full
BRPR VII Empreendimentos e Participações Ltda. 99.99% Full
BRPR VIII Empreendimentos e Participações Ltda. 99.99% Full
BRPR IX Empreendimentos e Participações Ltda. 99.99% Full
BRPR X Empreendimentos e Participações Ltda. 99.99% Full
BRPR XI Empreendimentos e Participações Ltda. 99.99% Full
BRPR XII Empreendimentos e Participações Ltda. 99.99% Full
BRPR XIII Empreendimentos e Participações Ltda. 99.99% Full
BRPR XIV Empreendimentos e Participações Ltda. 99.99% Full
BRPR XV Empreendimentos e Participações Ltda. 99.99% Full
BRPR XVI Empreendimentos e Participações Ltda. 99.99% Full
BRPR XVII Empreendimentos e Participações Ltda. 99.99% Full
BRPR XVIII Empreendimentos e Participações Ltda. 99.99% Full
BRPR XIX Empreendimentos e Participações Ltda. 99.99% Full
BRPR XX Empreendimentos e Participações Ltda. 99.99% Full
BRPR A Administradora de Ativos Imobiliários 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.
10. 8
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.
11. 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)
2.2. 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.
12. 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 (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.
13. 11
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.
14. 12
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).
15. 13
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
16. 14
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
Subsidiaries
Shares/units
of interest Capital
Revaluation
reserve
Shareholders’
equity
Income (loss)
for the year
Investment
book value Equity pickup
BRPR I Empreend. e Participações Ltda. 98,741,500 98,741 36,327 129,762 (605) 129,762 (524)
BRPR II Empreend.e Participações Ltda. 33,016,000 31,170 27,923 59,349 169 59,349 334
BRPR III Empreend. e Participações Ltda. 23,785,000 23,785 14,380 38,468 243 38,468 336
BRPR IV Empreend. e Participações Ltda. 66,896,620 66,896 4,334 70,434 229 70,434 255
BRPR V Empreend. e Participações Ltda. 56,869,000 56,869 1,128 58,087 199 58,087 214
BRPR VII Empreend. e Participações Ltda. 22,194,400 22,194 5,985 27,773 (50) 27,773 (4)
BRPR VIII Empreend. e Participações Ltda. 15,001,000 15,001 - 14,365 (633) 14,365 (633)
BRPR IX Empreend. e Participações Ltda. 10,083,771 22,283 12,361 22,283 (184) 22,283 (86)
BRPR X Empreend. e Participações Ltda. 1,000 1 - - - - -
BRPR XI Empreend. e Participações Ltda. 16,851,000 16,851 - 16,841 (9) 16,841 (9)
BRPR XII Empreend. e Participações Ltda. 1,000 1 - (1) (1) (1) (1)
BRPR XIII Empreend. e Participações Ltda. 5,701,000 5,701 - 5,557 (143) 5,557 (143)
BRPR XIV Empreend. e Participações Ltda. 21,851,000 21,851 - 20,980 (869) 20,980 (869)
BRPR XV Empreend. e Participações Ltda. 16,000 16 - 15 (1) 15 (1)
BRPR XVI Empreend. e Participações Ltda. 1,000 1 - - (1) (1) (1)
BRPR XVII Empreend e Participações Ltda. 1,000 1 - - (1) (1) (1)
BRPR A Adm. de Ativos Imobiliários Ltda 1,000 1 - (28) (21) (28) (21)
463,883 (1,154)
Company’s interest in subsidiaries is described in Note 2.
17. 15
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
Current
Non-
current Permanent Total Current
Non-
current Equity Total
BRPR I Empreendimentos e Participações Ltda. 4,747 1,407 317,351 323,505 23,387 170,356 129,762 323,505
BRPRII Empreendimentos e Participações Ltda. 1,606 - 153,051 154,657 8,682 86,626 59,349 154,657
BRPR III Empreendimentos e Participações Ltda. 3,508 - 94,745 98,253 7,453 52,332 38,468 98,253
BRPR IV Empreendimentos e Participações Ltda. 3,684 - 136,832 140,516 7,982 62,100 70,434 140,516
BRPR V Empreendimentos e Participações Ltda. 4,445 - 158,525 162,970 12,704 92,179 58,087 162,970
BRPR VII Empreendimentos e Participações Ltda. 2,473 - 57,150 59,623 4,854 26,996 27,773 59,623
BRPR VIII Empreendimentos e Participações Ltda. 852 - 40,267 41,119 2,760 23,994 14,365 41,119
BRPR IX Empreendimentos e Participações Ltda. 965 - 33,597 34,562 1,787 10,492 22,283 34,562
BRPR XI Empreendimentos e Participações Ltda. 8,640 - 14,953 23,593 6,753 - 16,841 23,593
BRPR XII Empreendimentos e Participações Ltda. 1 - - 1 1 - (0) 1
BRPR XIII Empreendimentos e Participações Ltda. 446 - 14,298 14,744 741 8,446 5,557 14,744
BRPR XIV Empreendimentos e Participações Ltda. 521 - 50,020 50,541 3,175 26,385 20,981 50,541
BRPR XV Empreendimentos e Participações Ltda. 23 - - 23 8 - 15 23
BRPR XVI Empreendimentos e Participações Ltda. 8 - - 8 8 - - 8
BRPR XVII Empreendimentos e Participações Ltda. 1 - - 1 1 - - 1
BRPR A Administradora de Ativos Imobiliários Ltda. 53 - 11 64 92 - (28) 64
Statement of Operations
Gross
revenues
from leases
Taxes, rebates
and costs of
leased
properties
Operating
expenses
Income and
social
contribution
taxes
Income (loss)
for the period
BRPR I Empreendimentos e Participações Ltda. 6,256 (1,569) (5,063) (229) (605)
BRPRII Empreendimentos e Participações Ltda. 3,156 (842) (2,145) - 169
BRPR III Empreendimentos e Participações Ltda. 2,176 (602) (1,331) - 243
BRPR IV Empreendimentos e Participações Ltda. 2,882 (860) (1,793) - 229
BRPR V Empreendimentos e Participações Ltda. 3,938 (992) (2,747) - 199
BRPR VII Empreendimentos e Participações Ltda. 1,342 (437) (955) - (50)
BRPR VIII Empreendimentos e Participações Ltda. 916 (190) (1,359) - (633)
BRPR IX Emprendimentos e Participações Ltda. 450 (272) (360) (2) (184)
BRPR XI Empreendimentos e Participações Ltda. - - (9) - (9)
BRPR XII Empreendimentos e Participações Ltda. - - (1) - (1)
BRPR XIIIEmpreendimentos e Participações Ltda 240 (51) (332) - (143)
BRPR XIV Emprendimentos e Participações Ltda. 420 (370) (919) - (869)
BRPR XV Empreendimentos e Participações Ltda. - - (1) - (1)
BRPR XVI Empreendimentos e Participações Ltda. - - (1) - (1)
BRPR XVII Empreendimentos e Participações Ltda - - (1) - (1)
BRPR A Administradora de Ativos Imobiliários
Ltda. 65 (9) (77) - (21)
18. 16
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 Imobiliários Ltda. (i) 1,407
Goodwill on acquisition of Icomap Industria e Comércio Ltda. (ii) 8,080
9,487
(i) This company is the owner of two industrial warehouses located in the city of Jandira, State of São Paulo.
After its acquisition by BR Properties, its corporate name was changed to BRPR VI Empreendimentos e
Participações Ltda.
(ii) This company is the owner of Edifício Icomap located in Rio de Janeiro. After its acquisition by BR
Properties, its corporate name was changed to BRPR IX Empreendimentos Participações 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.
19. 17
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
rate Cost
Accumulated
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
depreciation rate Cost
Accumulated
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 São 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.
20. 18
BR PROPERTIES S.A.
NOTES TO THE QUARTERLY FINANCIAL INFORMATION (Continued)
March 31, 2008
(In thousands of reais)
9. Loans and Financing
Consolidated
Purpose
Financial
charges
Final
maturity 03/31/2008 12/31/2007
Acquisition - Condomínio Edifício Bonfliglioli
IGP M+8.84%
p.a. 04/17/2017 12,198 12,067
Acquisition - Condomínio Panamérica Park and Edifício
Plaza Centenário TR+9.90% p.a. 05/25/2017 50,319 50,692
Acquisition - Condomínio do Edifício Glória (RJ), a building
located at 1280 Avenida Piraporinha, Alphaville Centro
Empresarial e Industrial, a building located in Jundiaí, and a
set of commercial warehouses in Itapeví 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 Edifício Henrique Schaumann
TR+10.15% p.a. 10/17/2017 30,527 30,578
Acquisition of Edifício 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 Edifício Paulista Park, Edifício
Berrini, Condomínio Edifício Isabella Plaza, 3rd
floor
of Edifício Olimpic Tower, Edifício Joaquim
Floriano, Condomínio Edifício Midas, Edifício
Number One and suite No. 31 of Edifício 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 Antônio IGPM+6% p.a 01/17/2018 26,710 -
Acquisition of building Ericsson São José 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
21. 19
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
Jundiaí industrial building 3,000 3,000
Edifício Glória 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$52,771 at
March 31, 2008, were recorded on the revaluation reserve of property and equipment
items (land and buildings), recorded by the subsidiaries, and their realization is based
on write-off and depreciation of such revalued assets.
22. 20
BR PROPERTIES S.A.
NOTES TO THE QUARTERLY FINANCIAL INFORMATION (Continued)
March 31, 2008
(In thousands of reais)
12. Contingencies
The Company is not involved in judicial proceedings of any nature, since it started
operating in April 2007.
13. Shareholders’ Equity
a) Capital
On December 22, 2006, a capital increase was approved in the amount of
R$ 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$3.09 per share.
23. 21
BR PROPERTIES S.A.
NOTES TO THE QUARTERLY FINANCIAL INFORMATION (Continued)
March 31, 2008
(In thousands of reais)
13. Shareholders’ Equity (Continued)
a) Capital (Continued)
At March 31, 2008 paid up capital for R$ 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 Company’s 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
24. 22
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 Participações Ltda. (ii) 23 -
BRPR V Empreendimentos e Participações Ltda. (ii) 910 -
BRPR IX Empreendimentos e Participações Ltda. (i) 4,229 4,125
BRPR XI Empreendimentos e Participações Ltda. (ii) 359 402
BRPR XII Empreendimentos e Participações Ltda. (ii) 1 -
BRPR XIII Empreendimentos e Participações Ltda. (ii) 4 -
BRPR XIV Empreendimentos e Participações Ltda. (ii) 1 -
BRPR XV Empreendimentos e Participações Ltda. (ii) 1 -
BRPR XVI Empreendimentos e Participações Ltda. (ii) 2 -
BRPR XVII Empreendimentos e Participações Ltda. (ii) 1 -
BRPR A Administradora de Ativos Imobiliários Ltda. (ii) 49 -
5,580 4,527
(i) Represented by advances for future capital increase made to subsidiary BRPR IX Empreendimentos e
Participações Ltda. that will be used to increase the subsidiary’s 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.
25. 23
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 Company’s 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 Company’s cash flow, by
maintaining a robust capital structure. Additionally, any mismatching between assets
and liabilities is consistently monitored.
26. 24
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
Edifício 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 Edifício Twin Towers, located at
Av. Raja Gabáglia, 1753, in the district of Luxemburgo, Belo Horizonte – MG.
