Political instability in Brazil may affect the Company’s business and the market price of its securities.

The country’s political environment has historically influenced and may continue to influence the performance of the Brazilian economy and political crises have affected the confidence of investors and the general public, resulting in an economic slowdown and higher volatility for securities issued by Brazilian companies. Political instability can aggravate Brazil’s economic uncertainties, increasing the volatility of bonds issued by Brazilian companies and influencing new investment decisions.

We may not be able to fully execute our business strategy.

Our business strategy depends on a number of factors, some of which are out of our control, such as land acquisition opportunities, project approval by competent authorities, changes in construction costs, retention of key people, favorable macroeconomic factors, access to financing under attractive conditions and increased consumption capacity, among others. We can not guarantee that our strategy will be fully implemented. As a result, we may not be able to expand our activities and replicate our business structure, which is essential for our businesses, as well as our organic growth strategy and, through acquisitions, to meet the different market demands. If we are not successful in developing projects and developments, our financial condition, results of operations and the market value of our securities may be adversely affected.

In addition, our future performance will depend significantly on our ability to manage the growth of our operations. The success of our strategy of capturing and maintaining tenants can be affected by the worsening economic situation in the country.  We can not guarantee that our capacity for growth management will be successful or that it will not adversely interfere with the existing structure. If we are unable to manage growth in a satisfactory manner, we may lose our position in the market, which may have a material adverse effect on our financial condition, operational results and the market value of our securities.

Part of our business strategy is focused on value generation by allocating project funding. Greater difficulty in identifying, approving, building or leasing these projects may jeopardize our strategy.

In addition, our business strategy is based on the expectation of our management regarding the growth of the market in which we operate. We can not guarantee that current market projections will be realized, nor that we will be able to meet the estimated demand growth in a way that is at least satisfactory vis-à-vis the investments that will be made and that must continue to be made. Each of our projects will require substantial capital expenditures and maintenance expenses, which we may not be able to offer. Our business strategy requires substantial investments for our future organic growth projects or via acquisitions. If the cash generated internally and the cash available through any lines of credit that are granted to us, if any, are not sufficient for capital financing, we will need new sources of capital and financing, including new public offerings for the distribution of shares or private capital increases, which may not be available under satisfactory conditions, and which could significantly affect the development of the projects. Future financing may result in higher interest and amortization expenses, higher leverage and lower profit available to finance subsequent acquisitions and expansion. In addition, they may limit our ability to absorb competitive pressures and leave us more vulnerable to economic problems. If we are not able to generate or obtain sufficient additional capital in the future, to conclude the construction, installation and development of one or more projects, our future cash generation may be impaired, which may force us to reduce or postpone capital outlays, sell assets or restructure and refinance our debt.

The swings in the political and economic scenarios in Brazil can lead to insecurity and discourage investment in the capital market, which, as a consequence, may affect the Company’s ability to raise funds at favorable costs and terms.   

Adverse conditions in the country and in the regions where shopping malls and leasing properties are located can adversely affect occupancy and lease levels and, consequently, our operating results.

Our operating results substantially depend on our ability to lease the space available in our malls and other rental properties. Adverse conditions in the country and in the regions in which we operate or in which we may operate in the future may reduce rental levels, as well as restrict the possibility of increasing the price of our locations. If our shopping malls and other rental properties do not generate sufficient revenues to meet our obligations, a number of factors consequently may be affected, including cash generation to honor commitments and distribute dividends. The following factors, among others, may adversely affect the operating results of our shopping centers and our rental properties, as the case may be:

• periods of recession and rising interest rates may result in lower rental prices, higher discounts granted and/or increased default by tenants, as well as decrease our rental and/or management revenues that are tied to tenant revenues;
• reductions in the volume of sales generated by stores established in our shopping centers, which are vulnerable to periods of economic slowdown in the country and also in regions where shopping malls are located, affecting the employment and wages of the population, and consequently consumer income;
• crises in the federal, state and municipal governments may affect the consumption capacity of its population, due, among other things, to the reduction of employment levels and delays in the payment of salaries to public servants and retirees, and as a result, the temporary or permanent reduction of consumer income leading to a fall in the sales volumes generated by the stores installed in our shopping centers;
• increased crime and urban violence in areas where malls and other leasehold properties are located;
• negative perceptions of rentees about the safety, convenience and attractiveness of the areas in which the shopping centers and other rental properties are located;
• delays and delinquency and/or non-compliance with the contractual obligations assumed by the tenants;
• shopping malls’ difficulties in keeping their store mix balanced and distributed, according to consumer demands and trends;
• delays in the development of regions and, as a consequence, delays in the development of properties located in the region;
• increased vacancy rates, the inability to attract and/or retain tenants; and
• increase in operating and condominial costs, increase of contributions in promotion and marketing fund, increase in parking expenses, among others, including the need to increase capital, among others.

Judgments and administrative decisions, if unfavorable, can affect us adversely.

We are a party to administrative and judicial proceedings, including tax, civil and labor, whose total value estimated by the Company’s attorneys as probable and possible losses was R$ 70.5 million as of December 31, 2017.

On December 31, 2017, the probable losses estimated in these legal actions totaled R$ 12.9 million.

Unfavorable judicial and administrative decisions, especially in cases where we do not establish provisions for risk or in cases where the provisioned amounts are lower than the amounts due, may adversely affect our operating and financial results. In addition, the competent authorities may have different understandings or interpretations from those adopted by the Company in conducting its business, which may entail administrative or judicial proceedings, whose final decisions may cause us an adverse material effect. In this regard, the Company was included in an inspection procedure looking into deductions (from taxable income tax and social contributions on net income (CSLL)) of certain service expenses incurred by the Company. Under these procedures, the Company was assessed and made, under protest, a total payment of R$ 2.5 million, with reduction of the qualified fine by 50%.

The impossibility of successfully implementing our organic growth strategy could adversely affect us.

Our organic growth depends primarily on our ability to open new shopping malls, new expansions and new properties for successful leasing, and is subject to a number of risks and uncertainties that may evade our control, such as (i) shortages in land, sizes and locations; (ii) difficulties in obtaining project approvals; (iii) lack of interest in new projects by the retail market; and (iv) other factors that may impair the development of projects. Our expansion capacity may be impaired if we are not able to identify strategically located commercial real estate suitable for new shopping malls and rental properties, or if the conditions of rental or construction are unfavorable or if the investments required to adjust the property to the our needs are very high. In addition, land use regulations and stricter zoning laws in the regions where we intend to operate may make it more expensive and difficult to obtain commercial property strategically located and suitable for the installation of these new shopping centers and rental properties. In addition, new shopping malls and rental properties may not timely achieve the level of revenue and profitability we have estimated compared to the Company’s other shopping malls and rental properties. Our new shopping malls and rental properties may adversely affect the Company’s profitability, which may impact our intended activities and our future consolidated results.

Market conditions may also delay our growth strategy by postponing launches to achieve better contractual conditions in the future.

In addition, if we expand our operations to areas in which we do not yet operate, we may face difficulties related to the lack of knowledge of these new geographic regions and not be successful in our investments, which could have a material adverse effect on our financial condition, results of operations and the market value of the securities we have issued.

Our debt may adversely affect our business and our ability to grow.

Our consolidated indebtedness may:

• limit our capacity to obtain new financing, including the fact that certain assets held by us are encumbered as collateral for existing debts;
• oblige us to dedicate a substantial part of our cash flow to honor existing debts, which may impair our ability to use cash flow to finance working capital, capital expenditures and other general corporate requirements, in addition to complying with our obligations;
• limit our flexibility to plan and respond to changes in our business and the industry in which we operate and to comply with our business strategy;
• putting us at a competitive disadvantage compared to some of our competitors who have lower debt levels;  
• increase our vulnerability to negative economic and trade conditions, including changes in interest rate changes or a dip in the retail trade or in the economy;
• increase in the cost of debt due to the increase in the prime interest rate;
• increase the cost of debt due to a Downgrade by the rating agencies.

In addition, our debt is adjusted by indexes such as the main interest reference rate (TR) and the IPCA, TJLP and CDI rates, while our revenues are tied to the IGP-DI as the main readjustment index. If there is a significant mismatch between the indexes that readjust our revenues and those that readjust our debt payments, our financial situation may be adversely affected.

Under the terms of the financial contracts and other debt instruments, we are subject to specific obligations as well as restrictions on our ability to contract additional debt.

We enter into financial agreements that require the maintenance of certain financial ratios or compliance with certain obligations. Any breach of the terms of such contracts, which is not remedied or waived by their respective creditors, may lead to the early maturity of the debit balance of the respective debts and/or other financial contracts. Our assets and cash flow may not be sufficient to fully pay the outstanding balances of these early declared maturing obligations. Accordingly, in the event of any default occurrence under such agreements, the Company’s cash flow and other financial conditions may be adversely affected. We can not guarantee that we will be able to meet these requirements, which could adversely affect our business, financial condition and operational results.

We depend on our senior management professionals for the implementation and achievement of our business strategy, and if we lose or are unable to retain our senior management, this may cause a material adverse effect on our business.

The implementation and consequent execution of our business strategy, as well as all the factors we consider to be the pillars for maintaining our growth, depend in a material way on the expertise and knowledge of our managers, especially our founder and current CEO and member of the Board of Directors, Mr. José Isaac Peres, and his team. Hence, the succession of our Chief Executive Officer and our executive staff, the retention of such key professionals, as well as the identification and attraction of other qualified professionals are fundamental components for the continuity of our success and development. The market in which we operate is competitive and we can not guarantee that we will succeed in attracting and retaining such professionals. Thus, if some of our senior management professionals leave the Company, we may find it difficult to replace them and, therefore, this may have a material adverse effect on our business.

Market conditions may also affect the retention strategy of managers and employees, since a portion of their long-term compensation is tied to the performance of the Company’s shares.

Interruptions and/or failures in corporate, operational or management information technology systems may affect the normal operation of our business.

We automate our business processes using information technology systems, having an integrated Enterprise Resource Planning (ERP) system with control, traceability and approval policies at differentiated levels, as well as management reports that support the visualization of the internal processes. In addition, we utilize business intelligence tools that support decision making. Interruptions or failures in these systems caused by accidents, malfunctions or malicious acts can have an impact on our corporate, commercial and operational functions, which may have an adverse effect on our businesses.

The compliance procedures, policies and program, and the governance processes established by the Company, may not be sufficient to eliminate violations of existing laws and standards or the Company’s internal policies.

The Company adopts governance, risk management, compliance, auditing and internal control processes designed to ensure compliance with the standards of conduct set forth in the legislation on social responsibility, ethics and integrity, although it is not possible to guarantee that such policies and procedures will be sufficient to prevent, detect or remedy any errors by its administrators, employees, employees, contractors or third parties contracted, or any interpretations by the authorities to that effect.

Potential financial difficulties and strategic missteps by large retail chains in shopping malls and businesses in our rental properties may cause a decrease in our revenues and adversely impact our business.

Eventual financial difficulties on the part of large retail chains located in our shopping malls or anchor stores and other companies that occupy or intend to occupy our rental properties may cause the termination of current leases, the expiration of the lease term of these units without renewal of the rental agreement or the increase in payment delinquencies. We may not be able to again occupy the spaces used by such rentors with ease, with the same characteristics and/or under the same conditions as the leases that terminated or expired. In the case of our shopping malls, any difficulties faced by important retailers, in addition to the financial impact, may adversely affect the diversity of stores, reducing our ability to attract consumers to the retailers, which may adversely affect us.

As owners of the properties in real estate ventures in which we have participation, we are subject to the payment of any extraordinary expenses, which may have an adverse effect on us.

As owners of the properties in the shopping centers and other rental properties in which we have participation (including in the case of Diamond Mall, whose obligation to maintain the property is part of the rental agreement), we are subject to the payment of any extraordinary expenses, such as the remodeling of shopping malls, painting, decoration, conservation, installation of security equipment, labor indemnities, as well as any other expenses that are not routine in the upkeep of the properties and condominiums in which they are located. We are also subject to expenses and costs arising from legal actions necessary for the collection of delinquent rent payments, legal actions in general (eviction, renewal, revision, among others), as well as any other payment defaults by tenants of properties, including revenues from leases, taxes, condominium expenses as well as costs for remodeling or recovery of properties for lease after eviction or amicable departure of the tenant. Payments or increases in such expenses may have an adverse effect on us.

Similarly, the Company may be forced to incur extraordinary expenses and investments to attract tenants to its projects in order to preserve the tenant mix.

Part of the shopping centers and other leases pertaining to our properties are formed in partnership with other groups or institutional investors, whose interests may differ from ours.

Institutional investors (including pension funds) and other groups hold a stake in some of the shopping centers and properties owned by the Company. In these ventures, in which these investors earmarked their investments, we depend, for the taking of certain decisions, on the consent of some of them with respect to certain significant decisions in such ventures.

We participate in some of the condominiums of shopping centers and rental properties, so we may face difficulties for the approval of condominium decisions. In addition, to approve certain matters, we depend on a quorum higher than our participation in the respective projects.

Our partners in shopping centers and rental properties may have interests that are different from ours, and may act contrary to our strategic policy and objectives. Disputes involving these partners may result in legal or arbitration litigation, which may increase our expenses and prevent our directors from being fully focused on the business, adversely affecting our financial condition and operating results.

In addition, if we are unable to achieve a sufficient quorum to approve these resolutions, we may not be able to adequately implement our business strategies and, therefore, our results and the distribution of profits to our shareholders and partners may be adversely affected.

We may not find new opportunities for expansion through acquisitions of new properties, which may adversely affect our operating and financial results.

As part of our growth strategy, we seek opportunities in the market in which we operate for acquisitions. However, we may not be successful in acquiring new, well-priced and satisfactory ventures, which could jeopardize our growth strategy via acquisition.

Future acquisitions may present financial, administrative, operational and regulatory challenges. Acquisitions expose us to risks of contingencies or liabilities of the land and projects acquired. A significant contingency associated with any one of our acquisitions may cause us a material adverse effect. In addition, we may have financial and operational problems if we are not able, as desired, to integrate, the projects acquired in our existing portfolio, as well as capture the expected synergies or, as a result of the inability of this business to generate sufficient revenues, to compensate the acquisition costs.

In this sense, the characteristics of the projects acquired may not be compatible with our growth strategy, which may require excessive time and financial resources for the adaptation of these ventures into the portfolio, leading to a loss of focus of our management on other businesses and, hence, adversely impacting our financial condition and operational results.

Finally, we may face regulatory obstacles as future acquisitions are analyzed by the Brazilian regulatory authorities regarding competitive matters and depend upon approvals for their effective realization. Thus, future acquisitions may not be approved or may be subject to conditions that increase the estimated costs, such as restrictions in the way we operate, which may cause us to miss important opportunities for our expansion plan, generating an adverse effect on our operations and results. Similarly, the Company may incur extraordinary expenses in projects that may not materialize.

Because they are considered public spaces, eventual events occurring inside our shopping malls and other ventures may generate consequences that are beyond the control of the administration, which could cause material damages to the image of our shopping malls and other ventures, in addition to being able to generate eventual civil responsibility issues for us.

The shopping malls and other developments in the Company’s portfolio, as public use spaces, are subject to a series of incidents that may occur inside them and may cause damages to its consumers and visitors, which includes accidents that may be out of the control of the administration and its prevention policies. In the event of such incidents, the project involved may face significant image and material damages, given that the frequency of consumers and clients may be reduced due to the mistrust and insecurity generated. In addition, the project may be subject to the imposition of civil liabilities and, therefore, be obliged to reimburse the victims, including payment of indemnities and legal proceedings.

In any of our shopping centers are involved in incidents of this nature, we may see an adverse effect on our businesses and on their operational and financial results, and there may be a negative impact on the market value of our securities.

Risks related to the outsourcing of a substantial part of our activities may adversely affect us.

We enter into contracts with third-party companies, which provide us with a significant amount of our labor pool. In the event that one or more third-party companies fail to comply with their labor, social security or tax obligations, we may be considered as subsidiarily responsible and, therefore, liable to pay off the outstanding amounts to the outsourced employees. In addition, we can not guarantee that employees of outsourced companies will not attempt to recognize employment relationship with us, which could adversely affect our results.

Risks not covered by our contracted insurance may result in losses to us, which could adversely affect our business.

Certain types of risks, such as environmental hazards, property damage caused by war, terrorism, chemical weapons, radioactive contamination and other risks expressly excluded, are not insured by the contracted policies. If any of the uninsured events occur, the investment made by us may be lost, in addition to any costs and expenses that we incur to recover damages caused to such shopping centers and ventures. In addition, we may be legally liable for the payment of indemnities for events arising from the event occurred. The occurrence of any of these risks may have adverse effects on our business, financial condition and results of operations.

Circumstances that affect the authorization of use of the “Multiplan” brand by the Company may eventually adversely affect us.

Circumstances that may affect the right to use the “Multiplan” trademark, such as misuse and/or expiration of the trademark, expiration of the period of validity or failure to comply with the rules established by the corresponding legislation, or loss of rights regarding the use of the trademark may adversely affect us.

The interests of our controlling shareholders may be conflicting or conflict with the interests of our minority shareholders.

Our controlling shareholders have the power, among other matters, to elect a majority of the members of the Board of Directors and determine the outcome of other resolutions that require shareholders’ approval, including related party transactions, corporate reorganizations, divestitures, partnerships and the payment of any future dividends. Our controlling shareholders may have conflicting interests between them and/or the interests of our minority shareholders, which may have adverse effects on our business, financial condition and results of operations.

We may need additional capital in the future through the issue of shares or securities convertible into shares, or participate in other companies by merger or incorporation, which may result in a dilution of the investor’s interest in our capital stock.

We may have to raise additional funds in the future through operations of public or private issuance of shares or securities convertible into our shares. The raising of funds through the public distribution of shares or securities convertible into our shares may be carried out with the exclusion of the preemptive right of our shareholders, which may result in the dilution of the participation of said investor in the shares of our issue. The approval of mergers, business incorporation or incorporation of shares may involve the issuance of our shares without preemptive rights for our shareholders, which may result in the dilution of their interest in our capital stock.

Our shareholders may not receive dividends or interest on equity.

Pursuant to our Bylaws, we must pay our shareholders at least 25% of our annual net income, calculated and adjusted pursuant to the Brazilian Publicly Traded Company Law, in the form of dividends or interest on capital. Net income may be capitalized, used to offset losses or retained under the terms of the Brazilian Publicly Traded Company Law and the Bylaws and may not be made available for the payment of dividends or interest on shareholders’ equity. In addition, the Brazilian Publicly Traded Company Law allows a publicly held company such as our not to distribute the mandatory dividend in a given fiscal year if the Board of Directors informs the general shareholders’ meeting that the distribution would be incompatible with our financial situation. If these events occur, the holders of our shares may not receive dividends or interest on shareholders’ equity.

The volatility and illiquidity inherent in the Brazilian securities market may substantially limit the ability of investors to sell our common shares at the desired price and time.

Investment in Brazilian securities, such as our common shares, often involves a greater risk than the investment in securities of issuers in other countries and are generally considered more speculative in nature. Brazil’s securities market is substantially smaller, less liquid, more concentrated and may be more volatile than the major international securities markets. Such market characteristics may significantly limit our shareholders’ ability to sell our common shares that they own at the price and at the time of their choosing, which may materially affect the market price of our common shares. If an active and liquid trading market is not developed or maintained, the trading price of our common shares may be negatively impacted.

In addition, the price of shares distributed in a public offering is often subject to volatility immediately after its realization. The market price of our shares may vary significantly as a result of several factors, many of which are beyond our control.

The entry or exit of shares issued by the Company in stock indexes may result in substantial variations in the participation of passive funds in the Company’s capital through the acquisition or sale of our shares. Relevant movements in the acquisition or sale of our shares may significantly affect the market price of our shares.

The interests of our employees and managers may, in the short term, be excessively tied to the quotation of our common shares, since their remuneration is also based on the performance of our shares.

At the Extraordinary General Meeting held on July 6, 2007, our shareholders approved a stock option plan for managers, employees and service providers of the Company or other companies under our control that meet certain requirements (“Stock Option“).

At the Board of Directors Meeting held on July 29, 2015, the Company’s Long-Term Incentive Plan (Phantom Stocks) was approved, which establishes the terms and conditions for the payment of a cash bonus, referenced in the valuation of shares issued by the Company, to certain administrators, employees and service providers of the Company or other companies under its control (“Incentive Plan“).

At the Company’s Extraordinary General Meeting held on July 20, 2018, the Company’s Restricted Shares Grant Plan was approved, which establishes the terms and conditions for the awarding of Company’s common shares, subject to certain restrictions, to administrators, employees and service providers of the Company, or of other companies under its control (“Restricted Shares“).

The fact that our employees, managers, collaborators and certain service providers benefit from the appreciation of our common shares may cause such persons to remain in the short-term with their interests excessively tied to our shares’ price quotation. In addition, if the share price does not appreciate, the Company’s long-term incentive plans may be less attractive to executives.

Our shareholders will be able to make Compay stock divestment decisions based on interpretations of the political and economic changes in the country, as well as changes in the perspective of the shopping center industry worldwide, causing a devaluation of our share price.

Changes in the perception of foreign and local shareholders over the country and the Company’s operations, influenced, among other reasons, by political-economic changes in Brazil and prospects of the shopping center activity in the world, may generate disinvestment movements by these shareholders and, consequently, generate negative changes in the value of the Company’s shares.

Our participation in partnerships with third parties or other forms of joint ventures creates additional risks for us, including potential financial and business relations problems with our partners.

Our participation in partnerships with third parties or other forms of joint ventures creates risks, including potential financial and business relationship problems with our partners. Risks involving these joint ventures include potential financial difficulties or bankruptcy of partners and the possibility of divergent or inconsistent economic or commercial interests. If our partner fails to make or is unable to maintain their participation in the necessary capital contributions, we may have to make additional unexpected investments and expend additional resources. Under Brazilian law, a company’s partners may be held liable for company obligations in certain areas, including, but not limited to, the tax, labor, anti-corruption, environmental and consumer protection areas. The occurrence of any of these risks may have adverse effects on our business, financial condition and results of operations.

Increases in the price of raw materials could raise our costs and reduce returns and profits.

The basic raw materials used in the construction of shopping centers, residential and commercial ventures include concrete, concrete blocks, steel, bricks, glass, wood, equipment, roofing, pipes and others. Increases in the price of these and other commodities, including increases that may occur as a result of scarcity, increase or creation of new taxes, restrictions or fluctuations in exchange rates, may increase our construction and sales costs, adversely affecting our business and the value of our securities.

We depend fundamentally on public services and public concessions, especially water supply, electricity, safety services and firefighters. Any decrease or interruption of these services may cause difficulties in the operation of our shopping centers and other retal properties and, consequently, adversely affect the results of our businesses.

Public services, especially water supply, electricity, safety services and fire services, are fundamental for the proper running of the operations of shopping centers and other rental properties. Discontinuation of these services can, as a natural consequence, lead to increased costs and certain failures in service delivery. In the event of a disruption, in order to maintain such services, as for example electric power, we require the hiring of specialized outsourced companies, which generally represents a high additional expense for us and a significant increase in our operating expenses. In this way, any interruption or change in the provision of public services essential to the conduct of our businesses may generate adverse effects on the results of our operations.

In line with its corporate purpose, the Company may invest in the generation of electric energy for its own consumption, and may even sell the surplus power. The operation of electricity generation depends mainly on the realization of several processes, which are subject to risks and uncertainties, including the process of obtaining licenses and authorizations, supply of equipment, construction of the plants and connections to the distribution and operation systems of the power plants. The financial benefits of electric power projects are subject to variations in the price available for acquisition in the market, where the total costs with own generation must be below market acquisition costs in order for the Company to obtain a positive result. Electric power generation projects are subject to possible changes in the regulation of the electricity sector.

The launch of new commercial real estate projects close to ours by our competitors may impair our ability to renew leases or rent out to new tenants, which may require us to make non-scheduled investments, hurting our businesses.

The launch of new developments in the areas close to ours, with the consequent increase in competition in the region, could impact our ability to sell, rent or renew the leases of spaces in our developments on terms favorable to the Company. In addition, the entry of new competitors in the regions in which we operate may require on our part the unplanned increase in investments in our developments, rental discounts and support to tenants, which may negatively impact our business and, consequently, our financial condition.

We may be adversely affected as a result of nonpayment of rents by tenants, review of rental values by tenants or increase of space vacancies in our shopping centers and rental properties.

The non-payment of rents by tenants, a review that implies reduction of rent revenues due to tenants and/or higher vacancy levels in our shopping centers and other rental properties, including in the event of a tenant’s unilateral decision to leave the property before of the maturity of the term established in their respective lease agreements, may generate a reduction in our cash flow and profits. The occurrence of any of these events may have an adverse effect on us.

Possible changes in consumers habits and perceptions may cause a decrease in our revenues and adversely impact our businesses.

Failure to adapt to the omnichannel trends (retailers acting in various sales and distribution channels) of our store mix, possible changes in consumer habits, such as shopping over the Internet in detriment to physical store purchases, and the use of mobility and alternative transportation, could negatively impact the retailers’ sales and the parking revenues of our shopping centers. The increase in the share of purchases through the Internet or other sales channels located outside of shopping centers may cause a reduction in the movement and/or reported sales of shopping centers, reflecting a decline in the number of clients visiting malls or that they visit them only to seek their products, and such a reduction may adversely affect our businesses, financial condition and operating result, considering that a important part of our revenues come from rent payment by merchants and merchandising in our shopping centers.

Increased use of alternative means of transport (such as mobility applications) for our shopping centers, instead of using our own vehicles, may result in a reduction in the volume of vehicles that use the parking lots of our shopping centers, and may negatively impact our parking revenues.

Changes in the perception of our clients may require investments to improve the mix of tenants and architectural standards.

The occurrence of any of these events may have an adverse effect on us.

The real estate and shopping center sectors in Brazil are highly competitive, which may lead to a reduction in the volume of our operations.

The Company’s scope of activities includes real estate acquisition, real estate development, planning, implementation, development, administration, intermediation and commercialization of real estate projects in general. The real estate and shopping center sectors in Brazil are highly competitive and fragmented. The main competitive factors in the real estate and shopping center industry include entrepreneurial vision, availability and location of land, prices, financing, projects, quality and reputation. A number of entrepreneurs in the real estate and shopping center sectors compete with us for the acquisition of land, the taking of financial resources for incorporation, and the search for potential buyers and tenants.

Other companies, including foreign companies, individually or in alliances with local or international partners, may become even more active in the real estate and shopping center segments in Brazil in the coming years, increasing the competition in the acquisition of land and real estate projects, in the leasing of shops, construction costs, suppliers and, consequently, competition in the sectors. As one or more competitors launch successful ventures and, as a result, their revenues increase significantly, our activities may be materially adversely affected. If we are not able to respond to such pressures as promptly and appropriately as competitors, our financial condition and results of operations may be materially impaired. Thus, in case of aggravation of these factors, a decrease in the volume of our operations may occur, negatively influencing our results.

The operating results of our shopping centers depend on the sales generated by the stores in them, which are vulnerable mainly during periods of economic recession.

Historically and more recently, in the years 2015 and 2016, the retail sector has been susceptible to periods of general economic slowdown that lead to a drop in consumer spending. In turn, the success of our operations depends, among others, on several factors related to consumer spending and/or affecting consumer income, including the general business situation, interest rates, inflation, availability of consumer credit, taxation, consumer confidence in future economic conditions, employment levels and wages. Thus, our results may be affected due to possible economic downturns.

The performance of our shopping centers is related to the ability of tenants to generate sales. Results and movement in shopping malls may be adversely affected by external factors, such as economic declines in the areas in which the shopping centers are located, opening of other shopping centers and closure or drop in the attractiveness of the stores in the shopping centers we manage.

A reduction in the movement of shopping centers as a result of any of these factors or any other factors may reflect a decline in the number of customers visiting shopping center stores and, consequently, in their sales volumes, which may adversely affect our businesses, financial condition and operating income, considering that a large part of our revenues comes from rent payments by merchants and merchandising in our shopping centers. A falloff in shopping center movement may cause difficulty to the merchants and, consequently, higher default rates, and a reduction in the price and volume of merchandising in the projects. For example, gross delinquency rates that remained stable at around 1.9% in the fiscal years ended December 31, 2015, 2014 and 2013, increased in the fiscal year ended December 31, 2016, when a gross 3.5% rate was registered; and a reduction in the year ended December 31, 2017, when the gross default rate was 2.8%.

In addition, the increase in our revenues and operating profits depends on the constant growth in demand for products offered by the stores in our shopping centers, such as electronics and white goods lines — that is, especially high added value products. Furthermore, the business can be affected by the general economic and commercial conditions in Brazil and the world. A drop in demand, whether due to changes in consumer preferences or a decline in purchasing power or a weakening of global economies and their impact on our economy, may result in a reduction in store revenues and, consequently, in our revenues, adversely affecting our businesses, financial condition and operating results.

The real estate sector is subject to several risks, such as those normally associated with (i) incorporation activities, (ii) scarce resources, (iii) a decrease in demand for real estate, (iv) success in concluding the construction and (v) abrogation and cancellations considering an unfavorable economic scenario that may impact credit supply or an increase in interest rates on financing.

The risks associated with the development and construction activities we develop include, but are not limited to, the following: (i) a long period between the commencement of a development project and its completion; (ii) operating costs, which may exceed the original estimate and inflation; (iii) the developer may be prevented from indexing costs to certain sector inflation indices or indexing its receivables; (iv) the level of buyer interest in a newly launched venture; (v) the unit selling price required for the sale of all units may not be sufficient to make the project profitable; (vi) the possibility of interruption of supply of construction materials and equipment; (vii) construction and sales may not be finalized in accordance with the stipulated schedule; (viii) possible difficulty in acquiring land; (ix) accidents at work; (x) unavailability or increase in the cost of labor; (xi) default by buyers; and (xii) cancellation of commitments entered into with buyers; among others.

In addition, the reputation and technical quality of the real estate projects developed by us, individually or in association with partners and others, are determining factors regarding our sales and growth. The deadlines for contracted performance and the quality of the real estate projects in which we participate, however, depend on certain factors that are out of control, including quality and timeliness in the delivery of the materials supplied to the works and the technical qualification of the professionals and outsourced workers (contractors). The occurrence of one or more events involving problems in the real estate developments in which we participate may adversely affect our reputation and future sales, in addition to subjecting us to the eventual civil liabilities and additional costs.

In addition, real estate companies, in which we are included, depend on a number of factors beyond their control for the delivery of real estate construction and real estate development activities, among which are: (i) the availability of resources in the market for the awarding of financing to clients for the acquisition of real estate, and the real estate companies for the development of new real estate projects; and (ii) the timeliness of clients in fulfilling their financial obligations related to the acquisition of a property.

Therefore, a possible shortage of resources in the market may decrease sales capacity, either because of the difficulty of clients in obtaining credit for the acquisition of a property, or because of the need to reduce the speed of the development and launching of our projects. In addition, we grant financing on the acquisition of certain properties to some of our clients and, therefore, we are subject to risks of default and mismatch of fees and cancellations. The combination of these factors may lead to a decrease in our revenues and a reduction in our results, which may have a materially adverse effect on our financial condition.

An unfavorable economic environment may also impact the supply of credit or increase in financing rates, making it difficult or impossible for direct or bank financing to be contracted by our customers, a scenario that may lead to an increase in payment delinquency or in the amount of canceled sales agreements.

Investments in innovation may not reach the expected benefits and bring additional risks to the Company’s operation.

Seeking to adapt to new habits, trends, disruptive technologies and other changes of the sector in which it operates, the Company may invest in the development and research of new technologies and innovations. These investments may not be profitable for the Company as a whole and especially when the initiatives are evaluated on an individual basis. Research and development also may not prove profitable, given the emergence of new and better technologies, legal, tax and other issues.

The Company has invested resources in the development of digital innovations, seeking to integrate its shopkeepers and customers through applications, websites and other digital resources. This project may require, in addition to the resources, integration between the Company’s systems and its tenants, development of a digital platform and attraction of shopkeepers and customers to this platform, among other complex and innovative initiatives. Due to the changing dynamics of this segment, the Company may incur substantial expenses in investing in technologies that, at the end or during development, may prove to be unviable or even obsolete at the end of the process. The development of a digital platform may involve the integration of the Company’s system with external systems, including, but not limited to, the possible integration with systems of its tenants. This integration, in addition to complex, can generate malfunction of the platform of all involved parties and can even paralyze the system, generate loss of information or incorrect processes. These investments may become unfeasible and/or may incur substantial expenses during the development or implementation of initiatives, arising from laws or interpretations thereof. There are legal risks involving processes related to information security and consumer law. Investments in technology may generate new operations that conflict with the Company’s current lines of business, thereby reducing the Company’s operating performance as a whole. Although the Company seeks to mitigate the impact of disruptive technology, these investments can accelerate this process of segment change.

The Company understands that any investment in research and development can lead to the total loss of investments and that the benefits of any research may not be satisfactory, thus being considered investments of significant risk.

Failure to comply with laws and regulations regarding data processing may result in penalties and an obligation to indemnify

Failure to comply with laws and regulations with provisions relating to the processing of personal data may result in the obligation to pay compensation for damages caused to data subjects, and in civil and administrative sanctions, which will result in increased expenses, unexpected investments and risks to our reputation. Considering the entry into force of Law 13.709/18 (“General Data Protection Law”), which will occur in February 2020, we may incur data protection expenses for compliance and technological and security infrastructure. Failure to comply with the provisions of the General Data Protection Act may result in administrative penalties ranging from a simple warning to fines that can reach significant amounts.

Failure to comply with environmental laws and regulations may result in the obligation to repair environmental damages.

Failure to comply with environmental laws and regulations may result in the obligation to repair environmental damages and the application of penal, civil and administrative sanctions, as well as to respond to damages caused to communities located in the vicinity of these areas, which will result in increased expenses, unexpected investments and risks to our reputation.

Considering that environmental legislation and its application by the Brazilian authorities are becoming more severe, we may incur environmental compliance expenses. In addition, delays or denials by the environmental licensing agencies in the issuance or renewal of licenses may adversely affect our activities.