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An investment in securities involves a high degree of risk. All investors should carefully consider the following factors in addition to the other information in this investor relations website before investing in BRMALLS‘ securities. In general, investing in the securities of issuers in emerging market countries, such as Brazil, involves a higher degree of risk than investing in the securities of U.S. issuers or issuers in other countries with highly developed capital markets. BRMALLS‘ business, financial condition, results of operations and prospects may be materially adversely affected by any of these risks.
The risks briefly described below are those that the Company currently believes most likely may materially affect its performance.
1) Risks Relating to the Company and the Brazilian Shopping Center Industry
- Adverse economic conditions in the regions where BRMALLS‘ shopping centers are located may adversely affect its levels of occupancy and its ability to lease available areas and thus have an adverse effect on the Company.
- The results of the shopping centers that BRMALLS‘ owns or manages depend on its tenants‘ sales.
- The contracts under which the Company provides management services for shopping, commercial and business centers may be terminated or not renewed by its clients, which could adversely affect the Company.
- The opening of new shopping centers near the ones that BRMALLS owns or manages may require the Company to make unanticipated investments and hinder its ability to renew its store leases or to lease space to new tenants, which could adversely affect the Company.
- BRMALLS may not succeed in growing its business through acquisitions.
- The Company shares control of its shopping centers with other investors, whose interests may differ from and compete with BRMALLS.
- Possible financial difficulties of its anchor stores may adversely affect the Company.
- Lease agreements in the shopping-center industry have specific provisions that create risks to its business and may adversely affect BRMALLS.
- Because its shopping centers are public places, incidents beyond the Company‘s control may occur, which could result in material damages to the image of its shopping centers and could expose BRMALLS to civil liability.
- The Company depends on the availability of public utilities and services, especially for water and electric power. Any reduction or interruption of these services may adversely affect BRMALLS.
- The Brazilian shopping-center industry is subject to extensive regulation, which may result in higher expenses or hurdles for the development of certain projects and adversely affect the Company.
- Losses not covered by insurance may adversely affect BRMALLS.
- Unfavorable judicial or administrative decisions may adversely affect the Company.
- BRMALLS may not succeed in fully implementing its business strategies.
- The Company may be a passive foreign investment company for U.S. federal income tax purposes in any year.
2) Risks Related to Macroeconomic Factors
- Interest Rate and Inflation Risks: Our debt in Real is subject to variations of the IGP-M (General Price Index - M / Fundação Getúlio Vargas (FGV)), IPCA (Broad Consumer Price Index / Instituto Brasileiro de Geografia e Estatística (IBGE)), TR (Reference Rate), TJLP (Long Term Interest Rate / Banco Central do Brasil) and CDI (Interbanking Deposit Rate). The debts that carry market risks are those that the original rate is swaped for protection. For all swaps, me carry out a sensibility analysis in adverse scenarios so that we can foresee possible market loses. Mark-to-market effects impact our financial results, but are not cash effects.
- Credit Risk: The Company’s operations include administration of shopping malls (ventures) and lease of related stores. The Company is subject to credit risk related to trade accounts receivable (from store owners) and marketable securities. The Company’s financial policy limits its associated risk with these financial instruments, allocating them to financial institutions, as described in Note 1.45 investment policy. Concentration of credit risk in accounts receivable is minimized due to the large number of customers, as the Company does not have any customer or company which represents more than 2.5% of its consolidated revenue.
- Liquidity Risk: Diferences between the actual value of investments made and the its previously estimated value may negatively impact our cash flow. Further reductions in ou forecasted cash flow may impact our capacity to invest in new acquisitions, in the development of new shopping centers and in the expansions of our existing portfolio.
- Price Risk: Revenues depend directly on the Company’s capacity to lease space available in the ventures in which the Company has invested. Adverse conditions may reduce the number of leases, as well as the possibility to increase lease prices.
3) Risks Relating to the Company‘s Common Shares
- The remuneration policy for our officers is intimately related to the performance and results of the company, which may lead our management to drive our business and activities with a greater focus towards short term results.
- We may need additional capital in the future, which may be done through emissions of shares or other stock-convertible securities, or acquiring other companies through mergers or incorporations, which may lead to a dilution of interest of our shareholders in our share capital.
- Our shareholders might not receive dividends or interests on capital.
- Volatility and iliquidity inherent to the Brazilian stock market may substantially limit the capacity of our investors to sell the Company‘s common shares at the desired price and time.