Value Chain

BRMALLS was the pioneer in professionalizing the shopping mall industry in Brazil. Nevertheless, it adopted a management model focused on maximizing mall efficiency in order to make its assets increasingly productive.

The mall industry's margin is already higher than the average margin in other sectors. In addition, BRMALLS managed to explore certain upsides, generating even higher margins. The Company's business model was, above all, based on:

• Rent: increased leasing of spaces in shopping malls, with strong leasing spreads and efficient audit processes;
• Parking expertise in pricing and operation optimization with companies specializing in the sector;
• Mall & Media: portfolio in scale, allowing greater bargaining power with media vehicles and increased occupancy, in addition to strong leasing spreads for malls;
• Mix of Tenants: access to the most desirable brands and restaurants; and
• Consumer Experience: use of resources to improve consumer experience, in addition to extensive expertise in marketing, thus bringing great events to malls.

Focus on efficiency and quality - Back Office

After 2015, when we once again began implementing the Back Office area, ensuring a more agile and controlled decision-making process, due to the review of processes and technology applied to the Company's financial operations and the centralization of transactional activities previously carried out by the business areas such as credit recovery and managerial information. In 2016, we entered into a maturation period, reaching highest SLA levels with internal clients and maximizing scale gains. Today we have state-of-the-art systems which support our operation and a team of 250 people to serve the 37 malls under our management, focusing on continuously improving our processes and increasing BRMALLS' focus on its core business, thus maximizing the efforts of our malls' teams to monetize and strengthen our assets.

Case Study: Shopping Tijuca

Case Study: Other Malls

Largest portfolio of managed malls in Brazil

At the 39 malls managed by BRMALLS we are giving more emphasis to the family entertainment center concept, whose main focus is capturing the moments of leisure of Brazilian families. The spaces for purchases and services are increasingly surrounded by a reinforced mix of leisure and entertainment options. The activities planned by the Company's marketing team are aimed at ensuring that our ventures adopt this leisure scenario, with options for children and adults, bringing families to our premises.

Some of these memorable experiences that our malls have sought to offer their customers are related to the successful partnerships established by the Company. BRMALLS is Disney's most important partner in the shopping mall global market, constantly offering its licensed novelties in Brazil. A pioneering initiative on 2016 Christmas was the first giant Mickey Mouse outside the U.S. Disney parks. The doll, entirely made of lights, was on display for a month at NorteShopping, in Rio de Janeiro.

Our licensed portfolio includes characters such as Mickey, Toy Story, Monsters, Cars, the Avengers, Princesses, Frozen and Spider Man, among others, in partnership with Disney. Other characters highly desired by children are exclusive to BRMALLS, such as Peppa Pig and the successful Earth to Luna, an agreement celebrated by the Company in 2016. Specialized and renowned consulting firms are still assisting us in the development and modernization of children's projects to ensure that we are recognized by our high ability to innovate and surprise our customers.

The innovating attractions offered by BRMALLS are based on consumer behavior surveys and aimed at the various profiles and age groups, in a democratic way. In this context, in order to make experiences memorable for all types of families, we introduced the pet friendly concept in most of our malls, with services and activities dedicated to this audience.

In 2016, the Company's malls held 99 events with these licensed characters, 44 of which exclusively related to our partnership with Disney, in addition to the 14 thematic Christmas events involved in the project. The figures show that more than 26 million people were impacted by the Disney initiatives this year, for a total of 2.3 million participants in our events. It is worth mentioning the Frozen events, which attracted more than 200,000 participants in the four shopping malls hosting these events in 2016. The spontaneous media generated by the Disney initiatives in our malls in 2016 passed the R$5.3 million milestone.

Tenants

Despite the challenging scenario, we structured the Company to achieve our sales target and in October we beat our record, with 695 contracts. We brought important tenants who will contribute to improve our portfolio mix and consumer experience.

*January to October 2016

In the last quarter alone, we entered into 425 new contracts in existing malls with major brands and in strategic shopping malls. The last quarter was also marked by an increase in occupancy, which had decreased compared to Company's history, influenced by the market scenario.

Retail is a highly adaptable industry and we need to pay close attention to its movements and trends. Consequently, we devote great attention to our tenants' sales and we are, therefore, prepared to seize market opportunities.

These indicators signal that the tenant base is being replaced with a healthier group, with a strong presence in the market. Tenants include renowned brands, which improve consumer experience, and whose skills and financial health help them go through periods of economic instability.

Advertisers

According to Kantar IBOPE Media, in 2016 the Brazilian advertising market sold media spaces worth R$129.9 billion (excluding discounts and negotiations with the vehicles). Of this total, only 2.2% refer to the OOH (out of home) market, which includes advertising in buildings, commercial establishments, large formats, street furniture and transport. BRMALLS is one of the vehicles in this market, where important global players operate, such as JC Decaux and Clear Channel, traditional street furniture companies.

BRMALLS has great representativeness in the purchasing of OOH media compared to the other mall companies in the market:

Likewise the shopping mall market, sales of OOH media in Brazil are still weak compared to that of other countries, such as the United States, where this segment accounts for more than 10% of the total.

BRMALLS understands the potential of this market and since 2013 it separated its media sales area from sales in stores and kiosks, as it is done in other companies in our industry in Brazil. Since then, we began professionalizing the area, adapting to the dynamics of the advertising market and adjusting our way of working and our products to the reality of small and large advertisers.

With the same goal in mind, in 2016 we became a member of the Brazilian OOH Media Association (ABMOOH), getting even more acquainted with market practices. BRMALLS is the only shopping mall company in Brazil affiliated with ABMOOH.

To cater to advertisers in a more structured and effective way, our malls have sales executives focused on media marketing. In São Paulo, a Key Account cell serves the most important domestic investors: advertising agencies and companies.

With that in mind, we also created a Special Projects area in order to develop customized projects for advertisers and segments. It is a new front created to increase media revenues for the Company, which has been consolidating itself among the market's traditional vehicles, accounting for an average of 30% of its revenue. Another achievement in 2016 was the partnership with a foreign agent who secured BRMALLS' registration as a media vehicle in the Federal Government Secretariat for Social Communication (SECOM), thus allowing sales of media space to government agencies.

We were also included in the list of vehicles monitored by KANTAR IBOPE MEDIA and began receiving market monitoring data from the institute, enabling us to better support our decision-making process and increase the efficiency of our prospecting efforts.

We have a wide range of suppliers, exempting us from any concentration risk. In the fiscal year ended December 31, 2016, none of our suppliers accounted individually for more than 5% of our expenses.

In terms of risks due to the provision of operational services, our shopping malls depend fundamentally on public and outsourced services. Any reduction or interruption to these services could hinder operations and, consequently, adversely affect us.