We develop our real estate development and construction activities directly or through Special Purpose Entities (SPEs), which are used as mechanisms to maximize their activities and results and the purchase and sale of interest in projects.

Companies incorporated as SPEs aim to facilitate the contracting of loans, as they enable the segregation of their equity from the company’s equity through the Affecting Equity, minimizing the risks for the lender. In addition, they are presented as a more efficient mechanism for establishing partnerships, making clear the participation of each partner in the project.

In benefit of the adoption of the Affecting Equity, the SPEs are taxed under the Special Taxation System (RET).

Our revenues come mainly from the development and sale of real estate and, to a lesser extent, from the provision of our own construction services and those for third parties.

Real Estate Development Revenue

These are amounts arising from the sale of units of launched projects, including monetary restatement.

We use the POC (Percentage of Completion) method to appropriate the revenue from our contracts for the sale of units in real estate development projects. The use of this method requires estimating the costs to be incurred until the completion of construction and delivery of the keys of the real estate units belonging to each project, to establish a proportion in relation to the costs already incurred, thus defining the proportion of contractual revenue to be recognized.

The total revenue recognized in the Income Statement (Income Statement for the Year) includes the market value of the units exchanged for the purchase of the land. The same value is considered in the land cost, so, despite the null effect on the result, there may be a significant impact on margin indicators, given the higher denominator for the same result.

Revenue from Service Provision

The revenue from services provided results from administration fees charged on management and construction services for own and third-party projects.

Our costs arise mainly from real estate development and, to a lesser extent, from the cost of services provided.

Real Estate Development

These are values related to land and construction costs, which include design, foundation, structure and finishing, as well as costs related to a wide variety of raw materials and in-house and outsourced labor.

Among the real estate development costs, the one related to the acquisition of land stands out. It can suffer significant variation due to the characteristics of each area, region and segment of the project to be launched. The forms of acquisition consist of cash payment, barter for units of its present or future projects, financial barter (a portion of the proceeds from the sale of units of the project to be developed on the land), and a combination of any of these forms.

Labor represents approximately 50% of the total construction cost. The other part is the cost of raw materials, each of which is not, in isolation, significant in relation to our total costs.

We are constantly working on the development of new construction techniques and the use of alternative inputs, seeking to reduce cost increases without losing quality. What is only possible thanks to the employment of skilled labor and specialized in improving the construction process. Although the prices of some inputs have increased significantly in recent years, above inflation, the large number of inputs used in construction activity mitigates any effects. In addition, receivables are reindexed by the National Construction Cost Index (INCC), mitigating such variations.

On average, the evolution of construction costs is used as shown in the table below:

(1)Excluding cost of land.

Our operating expenses include selling expenses and general and administrative expenses.

Sales expenses

Expenses on assembly of sales stands, decoration of the model apartment of each of the projects launched, commissions on sales, marketing and advertising actions are included. Such expenses may be deferred to be allocated to income based on the percentage of physical or financial evolution of the respective project to which they relate.

General and administrative expenses

These expenses include the following items:

• Outsourced auditing, consulting, legal and other services;
• Compensation to employees and social charges;
• Rents and other office expenses;
• Administration fees and social charges;
• Corporate expenses, including publication of minutes and financial statements;
• Legal expenses, including services provided by notary offices and by the commercial board;
• Expenses with billing and outsourced services.