PDG Realty- Company

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» Our Subsidiaries and Main Investments
» Subsidiaries Control Mechanism

Corporate Profile

We are engaged in (i) the co-development of specific real estate projects with several other well-known Brazilian real estate developers through special purpose vehicles that are used for each specific project and (ii) the development of real estate projects through investments in our portfolio companies. These portfolio company investments follow a private equity model, in which we acquire significant ownership interests in companies with operations in the real estate industry and actively participate in the development and implementation of their strategic plans. In both cases, we jointly develop and manage, together with our Partners, the planning and goals of all our real estate developments, independently of the size of our interest in the business.

Our management is comprised of professionals with substantial experience in the real estate, private equity, structured and corporate finance industries. We believe that our management’s complimentary abilities and expertise provide it with a superior management culture and an intimate knowledge of the Brazilian real estate market.

We operate in different real estate industry segments, including (i) the development of residential projects targeted at different income classes, ranging from the low middle-income class to the high-income class, (ii) the development of residential lots, (iii) investments in commercial developments for the generation of rental income, (iv) the purchase of commercial and residential units for subsequent resale and (v) rendering services as a real estate brokerage and consulting company.

Our co-development activities, and particularly our portfolio company investments, contributed to our growth in different geographic markets and segments of the Brazilian real estate industry, expanding our geographic coverage and ability to launch projects. We constantly seek to maximize the value of our portfolio companies by optimizing the management of their assets and resources. In most instances, our portfolio company investments have provided fresh capital to our portfolio companies to fund the expansion of their activities.

The Company’s interests in the Partnerships involve control-sharing mechanisms, both in terms of co-development and portfolio investments.

Co-Development

We conduct our co-development activities by incorporating and contributing funds to special purpose vehicles in which we and other well-known real estate developers are shareholders. These special purpose vehicles are generally liquidated upon completion of the real estate development and the receipt of revenue from the sale of the development’s units. We usually hold the right to appoint a number of the officers, members of the board of directors and the fiscal council of these special purpose vehicles, so that we may participate in all material decisions concerning such entities.

In addition, we normally enter into shareholders’ agreements with our partners in our special purpose vehicles. These agreements typically contain the following restrictions on the transfer of the special purpose vehicles’ shares by ourselves and our partners: (i) rights of first offer and refusal, which determine that any shareholder who intends to sell its shares must first offer them to the other shareholders; (ii) tag-along rights, which grant the shareholders the option to sell their respective shares together with any other shareholder intending to sell its shares to a third party, and (iii) in limited instances, drag-along rights, which give shareholders intending to sell their shares to a third party the right to require that other shareholders also sell their shares to the same buyer.

Our special purpose vehicles’ shareholders’ agreements also set forth that we will guarantee, if necessary, any required financing obligations incurred by the special purpose vehicles, and that our partners will pledge in our favor the shares they own in such special purpose vehicles as collateral for their proportionate share of the indebtedness.

These shareholders’ agreements also contain the financial schedule for the real estate project being developed through such vehicle, specify the investments to be made by each shareholder, and contain mechanisms to compel each shareholder to participate in the capital increases stipulated therein.

If any partner defaults on any obligations under the financial schedule, it will be liable for the payment of interest of 1.0% per month, a compensatory fine and any collection costs incurred by us or any other partner. The payment of such amounts will be made by transfer of the shares that the defaulting partner owns in the special purpose vehicle.

Portfolio Investments

Our investments in portfolio companies consist of private equity investments held by the Company (or, in some cases by FIP PDG I and subsequently transferred to the Company) based on private equity models of well-known Brazilian real estate companies.

The table below describes our current portfolio companies:

Portfolio Company	PDG Interest (%)	Activities
Goldfarb	100.0	Residential developments for middle and low middle-income classes in the states of São Paulo and Rio de Janeiro.
Brasil Brokers	5.47	Sale of residential real estates.
Lindencorp	15.92	Residential developments for high and high middle-income classes in the state of São Paulo.
CIPASA	15.92	Development of residential lot parcels.
CHL	100.0	Residential developments for middle, high-middle, and high-income classes, commercial developments and development of lot parcels, in the state of Rio de Janeiro.
REP DI	36.9	Commercial developments to generate rental income.
TGLT	30.0	Residential developments in Argentina, primarily in major cities.

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Our Subsidiaries and Main Investments

Portfolio Investments

In addition to our co-development activities, we have interests in eight portfolio companies: Goldfarb, Lindencorp, Cipasa (indirectly through Lindencorp), CHL, Jazz, REP DI, Brasil Brokers and TGLT.

Goldfarb

Overview. The Goldfarb group started its business in 1952. Currently, the group’s activities are concentrated in our portfolio company, Goldfarb Incorporações e Construções S.A., located in the city of São Paulo. Our relationship with the Goldfarb group started in February 2006, through an investment we made in the group’s former holding company, GDI – Goldinvest Desenvolvimento Imobiliário S.A., or GDI. On June 30, 2006, we acquired our interest in Goldfarb, using a combination of cash, the shares we held in GDI and our participation in certain residential units. GDI was subsequently merged into Goldfarb.

On April 30, 2007, we acquired an additional interest in Goldfarb by means of a cash payment of R$ 80 million, therefore increasing our total interest to 57.5% of Goldfarb’s shares. On June 29, 2007, our shareholders approved our merger of Key West Participações S.A., which owned a 12.5% equity interest in Goldfarb. Under such transaction, we issued 2,022,272 common shares that were subscribed by the former controlling shareholder of Key West Participações S.A., and our capital increased by R$ 12,275,611.12. As a consequence, we increased our total interest in Goldfarb to 70%. On August 31, 2007, we again increased our total interest in Goldfarb to 73.3%, by making a R$100 million investment in newly issued shares. On September 28, 2007, our shareholders approved our merger with MP Holding Ltda., which owned a 1.67% equity interest in of Goldfarb. As a result of such merger, we issued 681,818 new common shares to the shareholders of MP Holding Ltda., our capital increased by R$3,338,409.00 and our total interest in Goldfarb increased to 75%. On November 01, 2007, the Company subscribed to new shares in Goldfarb, totaling R$ 100 million, increasing its interest in Goldfarb to 77.5%. On December 21, 2007, an Extraordinary Shareholders’ Meeting approved the Protocol and Justification of Merger of MP Holding 2 S/A, which held 2.5% of Goldfarb. As a result, the Company’s capital stock increased by R$ 5,122,780 through the issue of 1,136,364 common shares. These shares were transferred to the former shareholders of MP Holding 2 S/A and the Company’s stake in Goldfarb increased to 80%.On March 03th, PDG Realty has acquired in advance the remaining 20% Goldfarb’s shares by the merger of MP Holding 3 Ltda. into the Company.

Capital Stock : currently, the Company retains 100% of Goldfarb’s common shares and 99.99% of its preferred shares. The only remaining outstanding shares shall be three (3) preferred shares held by Mr. Milton Goldfarb, which do not confer equity rights or rights to receiving dividends to their holders, granting only the following rights: veto rights, up to the shareholders general meeting that shall approve the results of the 2011 fiscal year, in the election of (i) 2 members of the Board of Directors, out of a total of 6 members; (ii) the Chief Executive Officer and the Chief Operational Officer.

Operations . Goldfarb develops real estate projects for middle-income and low middle-income class consumers in the state of São Paulo, and is considering expanding to other Brazilian states in the near future. Goldfarb decided to concentrate operations in these segments after operating in different segments of the real estate market. Goldfarb develops standardized projects, which reduces its construction costs, increases its profitability and reduce risks, as the projects have been tested and improved with every new development. Goldfarb’s customers constitute one of the largest groups of borrowers that utilize the credit facilities granted by CEF. According to the EMBRAESP’s 2005 ranking, Goldfarb was the fifth largest development company in the state of São Paulo in terms of constructed area. Goldfarb is ranked first in São Paulo within the middle and low middle-income segments, both in number of residential units launched and general sales volume launched, according to EMBRAESP. Goldfarb’s target markets are the middle and middle-income classes, particularly households with family income between 5 and 20 minimum wages per month, as well as recently married individuals buying their first real estate property, divorced individuals, and individuals living in rented residential units who have the financial resources to buy a residence.

Avance is a brokerage company and an indirect subsidiary of Goldfarb, controlled by Brasil Brokers. It has 150 brokers currently working to sell Goldfarb’s real estate developments. We believe that the existence of a brokerage company within the Goldfarb group increases Goldfarb’s sales, as Avance brokers have specific expertise in the middle-income and low middle-income segments of the market and are thoroughly familiar with the residential units sold by Goldfarb and the target customers more likely to purchase them. We also believe that this business model presents low risk and high potential of growth. Furthermore, because Avance is a member of the Goldfarb group, its brokers are able to offer our customers certain flexibility for the payment of brokerage fees, allowing them to pay these amounts in installments.

As controlling company of Goldfarb, PDG Realty focuses on implementing new corporate governance practices, particularly the generation of value and capitalization for future investments. Its long-standing expertise in financial engineering is applied to Goldfarb’s activities.

Lindencorp

Overview . Lindencorp is engaged in the development of real estate projects in the state of São Paulo and owns 100% of Cipasa’s capital, as described below.
Capital Stock. We own 15.92% of Lindencorp’s outstanding capital. The remaining shares are held by the Banif Primus Real Estate Investment Fund, the Adolpho Lindenberg Group, Grupo Cipasa São Paulo, and other private investors.

Operation . Lindencorp develops sophisticated and customized residential buildings for high-income and high middle-income customers.

Shareholders’ Agreement.: The Lindencorp shareholders’ agreement, as amended, contains restrictions on the transfer of shares and mechanisms that allow us to share control in such company. The main provisions of this agreement are: (i) a right of first refusal, which provides that any shareholder who intends to sell its shares in Lindencorp must first offer such shares to the other shareholders(ii) drag along in the event of any shareholder wishing to sell their shares; (iii) a tag-along right, which grants the shareholders the option to sell their respective shares together with any shareholder that intends to sell its shares to a third party, (iv) a preemptive right, which grants shareholders the right to participate in the issuance of new shares or convertible securities in the same proportion of their shareholdings, (v) a sale option granted to us and Banif Primus Real Estate Investment Fund, pursuant to which we may require the other shareholders of Lindencorp, in one or more transactions, to purchase our equity interest in Lindencorp for a symbolic price, (vi) right of withdrawal in case any third party (that is not a party to the shareholders agreement) purchases 70% or more of the shares issued by Lindencorp, (vii) a supermajority quorum for the approval of certain matters and (viii) a right granted to us to elect two members of the board of directors and a right granted to Banif Primus Real Estate Investment Fund to elect one member. The agreement also provides for a drag-along right item (ii), which gives any shareholder selling its shares to a third party the right to require the other shareholders to sell their shares to the same buyer. This drag-along right may be exercised by shareholders representing at least 35% of Lindencorp’s capital. However, the shareholders being required to sell their shares may decide to purchase the shares of the other selling shareholders instead of selling their own interest in Lindencorp.

Cipasa

Overview . Cipasa develops residential buildings for all income segments in the state of São Paulo. Lindencorp acquired its interest in Cipasa through a capital increase carried out in October 2006

Capital Stock . Lindencorp currently owns 100.0% of Cipasa’s outstanding capital, pursuant to share subscriptions and acquisitions that occurred in October 2006, as well as a share exchange carried out with former shareholders in November 2006, pursuant to which Cipasa’s former shareholders (Cipasa São Paulo Empreendimentos e Participações Ltda. and Ellensbrook Participações Ltda., two companies in the land parceling business) exchanged their Cipasa shares for Lindencorp shares.

Operation . Cipasa has 6.3 million square meters in its land bank and is currently co-developing 35 real estate projects with an estimated general sales volume of R$2,480.6 million, R$150.9 million of which corresponds to PDG’s proportionate share. The average share of Cipasa in these co-development projects is approximately 34.0%.

CHL

Overview . CHL resulted from a joint venture between us and CHL – Incorporações e Loteamento Ltda. and is engaged in the development of residential units for high-income, high-middle-income and middle-income customers in the state of Rio de Janeiro. CHL is also operating in the commercial building and land parceling segments in the state of Rio de Janeiro.

Capital Stock . We currently own 70% of CHL’s capital stock. Prior to June 29, 2007, we owned a 40% equity interest in CHL. On such date, our shareholders approved our merger of CHL XV Incorporações Ltda., which held a 10% interest in CHL. As a result of such merger, we increased our interest in CHL from 40% to 50%. On November 26, 2007, the Company subscribed to new shares in Goldfarb, totaling R$ 100 million, increasing its interest in CHL to 57.69%. On December 21, 2007, an Extraordinary Shareholders’ Meeting approved the Protocol and Justification of Merger of CHL XXXIV, which held 12.31% of CHL. As a result, the Company’s capital stock increased by R$ 17,122,657.00, through the issue of 3,200,000 common shares, which were transferred to Mr. Rogério Chor, and the Company’s stake in CHL increased to 70%.

Operation . Based on data released by ADEMI-RJ, we believe that CHL is one of the largest developers in the state of Rio de Janeiro in terms of launched volume of sales, with experience in residential developments for high-income and high middle-income class customers.

Shareholders Agreement : the shareholders agreement entered into by the Company and CHL Incorporações e Loteamentos Ltda. on November 26, 2007 provides for restrictions on the transfer of shares. The rights provided for in this agreement are as follows : (i) the right of first refusal for the remaining shareholders in the event of any shareholder wishing to transfer their shares; (ii) the right of first refusal, on the sole part of the Company, should Goldfarb receive an offer for the acquisition of its shares; (iii) the right of first refusal in any subscription of new shares, proportional to the interest of each shareholder on the issue date of said shares; (iv) tag along rights, which may be exercised by the Company in place of the right of first refusal cited in item (ii) above; (v) drag along rights, by means of which the Company may require the remaining shareholders to sell their stake together with the shares sold by the Company; (vi) the Company has the right to elect four members of Goldfarb’s Board of Directors, which will be composed of six members; and (vii) the need for approval by Grupo Goldfarb of certain items submitted to the Annual Shareholders’ Meeting or to Goldfarb’s Board of Directors.

REP DI

Overview . REP Real Estate Partners Desenvolvimento Imobiliário S.A, headquartered in São Paulo, is a publicly-held company resulting from the partnership between LDI and the founding partners of REP Participações Ltda. (“REP”), a company that provides consultancy services and develops commercial projects. The Company transferred its interest from Companhia REPAC de Participações to REP DI. On July 11, 2008, REP DI obtained its registration (no. 2153-9) as a publicly-held company from the Brazilian Securities and Exchange Commission (CVM).

Capital Stock . We hold 25% of the capital of REP DI, and Lindencorp owns the remaining 75% of its capital. Accordingly, we consider our direct and indirect interest in REP DI to be 36.9%.

Operation . REP DI develops commercial real estate properties for rental, such as convenience stores and service centers. These centers offer services to the public residing in the neighborhood where the properties are located and to people passing through the surrounding area of such convenience stores and service centers. REP DI is currently participating only in the co-development of the “CCS Valinhos,” “CCS Panamby,” “CCS Perdizes,” “CCS Diógenes,” “Power Center Itaquera,” “Multiuso Oscar Americano,” “Shopping Augusta,” “Shopping Ana Rosa” and “Shopping Largo 13” real estate projects.

Shareholders’ Agreement . The REP DI shareholders’ agreement contains restrictions on the transfer of shares and mechanisms that allow us to share control in REP DI and in the special purpose vehicles incorporated by REP DI. The main provisions of this agreement are: (i) a right of first refusal, which provides that any shareholder who intends to sell its shares in REP DI must first offer such shares to the other shareholders, (ii) a tag-along right, which grants the shareholders the option to sell their respective shares together with any shareholder that intends to sell its shares to a third party, (iii) the obligation that any new shareholder of the company become a party to the shareholders’ agreement, (iv) a right to dilute the party that decides not to participate in any capital increase by the company, and (v) a drag-along right, which gives Lindencorp the right to require the other shareholders to sell their shares in case a potential buyer intends to acquire 100% of REP DI’s shares. In addition, the shareholders’ agreement sets forth that Lindencorp is free to develop any projects in which REP DI decides not to engage.

Brasil Brokers

Overview . Brasil Brokers is a joint venture between us and ten other companies engaged in the Brazilian real estate sector. Brasil Brokers is focused in providing real estate brokerage and consulting services. It has a team of approximately 420 employees and over 2,130 brokers currently distributed in 275 sales points.

Capital Stock . We currently hold 5,47% of Brasil Brokers’ capital stock.

Operation . Brazil Brokers renders general real estate brokerage services, primarily selling and consulting services.

Shareholders’ Agreement . On June 30, 2007, we and the other shareholders of Brazil Brokers entered into a shareholders’ agreement, or the Pre-IPO Shareholders’ Agreement, to govern the management of Brasil Brokers and its respective subsidiaries, as well as the shareholders’ relationships before and during the Brasil Brokers IPO. On the same date, these parties also entered into another shareholders agreement, or the Post-IPO Shareholders’ Agreement, which will govern the shareholders’ relationship after the Brasil Brokers IPO, especially in connection with (i) restrictions on sale or transfer of Brasil Brokers shares, and (ii) rules concerning voting rights.

Pursuant to the terms of the Pre-IPO Shareholders’ Agreement, the parties agreed to take all actions necessary to successfully implement the Brasil Brokers IPO, and to refrain from taking any action that would be inconsistent with Brasil Brokers’ ordinary business. If the Brasil Brokers IPO does not occur prior to March 31, 2008, the shareholders of Brasil Brokers are required to take appropriate action to wind up the company and return the relevant shares issued by the brokerage companies currently controlled by Brasil Brokers to their respective original shareholders. The Pre-IPO Shareholders’ Agreement will be in force up to the completion of the Brasil Brokers IPO.

The Post-IPO Shareholders’ Agreement contains restrictions on the transfer of shares and mechanisms that will allow us to share control in Brasil Brokers. The main provisions of this agreement are: (i) restrictions concerning the transfer of Brasil Brokers shares within the first six years after the completion of the Brasil Brokers IPO, (ii) a right of first refusal, which provides that any shareholder who intends to sell its shares in Brasil Brokers must first offer such shares to the other shareholders, (iii) prohibitions on encumbering the shares of Brasil Brokers, (iv) supermajority quorums for the approval of certain matters in meetings of shareholders or board of directors.

TGLT

Overview : TGLT is a real estate development company that develops primarily residential buildings in Buenos Aires, Argentina, and its surrounding areas.

Capital Stock: We currently hold 30% of TGLT’s capital stock. We acquired these shares on August 31, 2007 for a price of US$7 million. Mr. Federico Nicolas Weil holds the remaining shares of TGLT, representing 70% of its capital stock.

Operation: TGLT develops residential buildings for high-income and high middle-income customers in Argentina.

Shareholders’ Agreement : We entered into a shareholders’ agreement with Mr. Federico Nicolas Weil, which grants us the right to appoint three officers and three members of TGLT’s fiscal council (commission fiscalizadora). Additionally, the shareholders’ agreement and TGLT’s by laws grant us veto power in connection with the following matters: (i) acquisition of options to participate in new real estate projects, in case the exercise price of these options exceeds US$1 million, (ii) changes exceeding 20% of the annual budget for infra-structure expenses (including expenses related to sales and management), (iii) acts resulting in the increase of TGLT’s indebtedness in an amount exceeding its total shareholders’ equity, (iv) the merger of TGLT with other companies and/or acquisition of other companies resulting in a potential dilution of more than 20% per transaction or 33% in the aggregate, (v) investments in business that are not related to the real estate business in Argentina, (vi) transactions between TGLT and Mr. Federico Nicolas Weil, or any parties related to him, and (vii) changes in TGLT’s dividend distribution policy.

Below we demonstrate our Portfolio investments and their main characteristics:

	PDG Realty’s stake: 100%
	Business model: real estate development focused on the low income groups.
	Operational areas: São Paulo state (including São Paulo city), Rio de Janeiro, Espírito Santo, Paraná, Santa Catarina, Minas Gerais, Mato Grosso do Sul, Goiás, Bahia, Mato Grosso, Pará and Distrito Federal.
	PDG Realty’s stake: 100%
	Business model: residential and commercial building and real estate development focusing on all segments from middle to luxury, acting in land parceling and commercial.
	Operational areas: Rio de Janeiro state
	PDG Realty’s stake: 15.9%
	Business model: residential building and real estate development focusing on mid-high and high income segments.
	Operational areas: São Paulo state
	PDG Realty’s stake: 15.9%(1)
	Business model: residential subdivision developments geared towards all income groups. Cipasa is one of the country’s biggest land developers. Operational areas: São Paulo state (interior of São Paulo and capital)
	PDG Realty’s stake: 36.9%(2)
	Business model: Development of commercial real estate projects aimed at the generation of revenue through rental. Joint Venture with Kimco Realty Corporation.
	Operational areas: São Paulo and Rio de Janeiro states
	Joint venture Kimco Realty and REP
	Business model: the largest retail center company that intends to focus its activities in the country on the development of local malls and Service and Convenience Centers (SCC)
	PDG Realty’s stake: 6% (3)
	Business model: real estate broker and consultant, comprising 11 companies with a strong presence in the most important Brazilian property markets.
	Operational areas: 70 cities in the southeast and northeast regions of Brazil, including the metropolitan regions of São Paulo (and its satellite cities that are collectively known as ABCD Paulista), Rio de Janeiro (including Niterói and Lagos), Belo Horizonte, Salvador and Natal.
	Joint Venture CHL and Pinto de Almeida
	Business model: partnership between CHL and Pinto de Almeida for real estate developments in the city of Niterói, Rio de Janeiro state.
	Joint Venture Abaurre
	Business model: partnership between PDG Realty, Goldfarb and Construtora Abaurre for real estate developments focused on mid-low and mid income classes in the state of Espirito Santo.
	Joint Venture CHL and Estrutura
	Business model: land parceling in the north region of Rio de Janeiro state focused on mid and mid-low income classes in partnership with CHL
	PDG Realty Share: 30%
	Business model: Real estate development in Argentina, developing mostly residential projects in the country’s major cities
	Region of operation: Argentina
	Joint Venture LN
	Business model: one of the largest construction companies in Paraná and Santa Catarina operating in the upper-middle and lower-middle income segments.
	Joint Venture Dominus
	Business Model: construction of residential and commercial buildings, urbanization of large areas, and management of projects in various segments like hotels, residences and offices in the state of Minas Gerais.

(1) Percentage equivalent to the interest indirectly held by the Company, through Lindencorp, which owns 100.0% of Cipasa.
(2) The Company holds 25% of the shares in the capital stock of REP DI, while LDI owns the remaining shares, and thus the Company holds a total direct and indirect stake of 36.94%.
(3) subject to change

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Subsidiaries Control Mechanism

Co-Development

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