The Prolifico Report May & Jun 2015 July 17th 2015

IMPROVED RELATIONS WITH THE US?

Rousseff and Obama during the recent Brazilian state visit to the USA, where Rousseff met with investors to pitch Brazil´s opportunities.

SUMMARY

“It is a very compelling time to have an established platform in Brazil and capital to allocate.”

- Josh Pristaw, Senior Managing Director and Co-Head of GTIS Brazil (Forbes, May 21st 2015)

“A sharp correction in asset prices and a string of bankruptcies relating to the Petrobras scandal,

lower oil prices, and major exchange rate depreciation since 2011, mean that real-denominated assets

are beginning to look enticing. Indeed, there have been reports that private equity firms are showing

an increasing interest in real estate assets.”

– Mark Schaltuper, BMI Research (Financial Times, May 15th 2015)

Brazil has made significant advancements in international relations over the last 2 months, including an

official US state visit by President Dilma Rousseff, the first since the US was accused of spying on Brazil in

2013.

Major infrastructure concessions were recently announced, amounting to almost R$200 billion in

highways, railways, airports and ports. Furthermore, the visit of China’s prime minister in May ended with a

commitment of over US$50 billion in investments into Brazil’s infrastructure projects.

Brazil’s Congress is close to fully approving the fiscal adjustments package crafted by the new finance

minister but due to delays in these approvals, the benefits will likely only be seen in 2016. Inflation

forecasts are improving.

International investors continue to enter the Brazilian real estate market, seeing the current environment

as an attractive entry point in the cycle. US real estate fund GTIS recently acquired Brazil Hospitality

Group (BHG), one of the largest hotel chains in the country. The firm thinks that Brazil currently offers a

unique combination of near-term distress, coupled with medium and long-term growth. Tishman Speyer

recently acquired a site in Rio’s port area to develop 1,000 residential units. “The country has some core

strength that hasn’t changed despite the current challenges”, said Rob Speyer, of Tishman Speyer.

Prolifico continues to add value to its assets under management and build its platforms in the alternative

real estate space. It is currently working on a number of interesting distressed opportunities.

Please continue reading for more on the above and for some other interesting topics.

All the best,

The Prolifico Team

INSIDE BRAZIL

Dilma and Obama in Washington

Li Keqiang, Prime minister of China

Joaquim Levy, Finance Minister

Dilma Rousseff strengthens ties with the US

Rousseff visited the USA in late June, where she met with Obama

and groups of investors and business leaders, including names such

as Larry Flink, president of Blackrock and Larry Page, founder of

Google. With Obama, she debated matters such as climate change

and trade between the two nations, while she had the opportunity

to discuss the fiscal adjustment and the concessions program with

several business leaders. Citigroup’s senior consultant, Bill Rhodes,

said Dilma’s presentation was "very good".

New R$198bn infrastructure-concessions package announced

The government has announced a concessions program aimed to

develop Brazil’s infrastructure. It consists of 11 highways, 4 airports,

5 railways and 113 port terminals. Despite a railway connecting Brazil

and Peru’s coasts, previously seen as unlikely to ever happen, this

new program is now seen as more realistic and attractive for

investors. Furthermore on a recent visit to Brazil, the Chinese prime

minister signed a commitment to invest US$53bn in Brazil’s

infrastructure, including the funding of the Brazil-Peru railway.

Government launches program to boost exports

The government launched in June the National Exports Plan, aimed

to boost Brazilian exports. Among the measures announced, is a

US$15bn increase in FGE, a reinsurance fund for exporters, and the

simplification of the drawback regime, which exempts exporters of

taxes on imported raw materials. According to Humberto Barbato,

president of the electronics industry association, “the plan is quite

complete and comes at an important moment”.

Fiscal adjustment approved, but results only likely in 2016

Congress is close to fully approving the fiscal adjustments, with only

one measure still awaiting a vote. The late approval of some

measures will reduce their impact in 2015. This coupled with a

decrease in tax revenues (due to a slower economy), should

prevent the government from reaching its primary surplus target of

1.2% of GDP. However, the finance minister J. Levy is seeing an

underlying improvement in the economic environment, which

should translate into a more positive 2016.

Inflation forecasts improve as Central Bank gains credibility

The five financial institutions with the most accurate inflation

estimates, gathered by the Central Bank, are forecasting for the first

time in 5 years, that IPCA will be within the 4.5% target from 2017 to

2019, reinforcing the market confidence in the Central Bank’s policy.

The bank has recently narrowed the target range from 4.5% (plus or

minus 2p.p.) to 4.5% (plus or minus 1.5p.p.). IPCA in June was 8.89%.

BRAZIL EXTRA

Brazil’s congress, Brasília

Ben van Beurden, Shell’s CEO

Formula 1 paddock model

Congress approves the end of re-election

With 452 votes in favour, 19 against and 1 abstention, the chamber

of deputies approved the end of any president, governor or mayor

being able to run for 2 terms. To become effective, the

constitutional amendment needs a second round vote by the

chamber of deputies, as well as a vote by the senate. In addition,

congress has also approved the extension of the term from 4 to 5

years.

Petrobras discloses R$5.33bn profit in Q1

After disclosing major losses in 2014 (R$21.7bn), due to corruption

and mismanagement, Petrobras has returned to profitability already

in the first quarter of 2015. Under new management, headed by the

former CEO of Banco do Brasil, Aldemir Bendine, the Brazilian oil

company posted an R$5.33bn profit in the period, reinforcing its

capability to generate high revenues and be profitable.

Brazil to account for 20% of Shell’s oil production

With the acquisition of BG Group by Shell, in a US$70bn deal and

when the projects under development in Brazil start operating,

Brazil will account for 20% of the company´s global production,

according to Shell’s CEO, Ben van Beurden. Van Beurden says that

Shell wants to increase its presence in Brazil even more. "I believe

that the fundamentals of Brazil are very strong and particularly if

you look from our perspective, we are investing in a world-class

resource. We have to be optimistic and I am.”, he said.

Enrolments in universities increase, even with reduction in credit

Kroton, Estácio, Anima and Ser Educacional, the four listed higher

education companies in Brazil, have reported an increase in

enrolments during the first quarter of the year. Ser Educacional

experienced a 19.5% rise in student enrolment, while Kroton saw the

number of new students increasing by 4%. Since the beginning of

the year, the government has restricted the credit lines for higher

education students, which was expected to cause a reduction in the

number of new enrolments. Brazil has more than 6 million students

in higher education.

F1 boss, Bernie Ecclestone, produces gourmet coffee in São Paulo

In 2012, Bernie Ecclestone acquired a century-old farm in Amparo,

in the state of São Paulo, where he currently produces, with his

Brazilian wife, Celebrity Coffee, a gourmet coffee that can only be

purchased in the paddocks of an F1 Grand Prix around the world or

in a handful of hotels. The 490-acre property (larger than Monaco)

has about 120 thousand coffee trees. Ecclestone and his family have

an estimated fortune of US$3bn.

REAL ESTATE

BHG’s hotel in Vitória (ES), Brazil

Rob Speyer, Tishman Speyer President

Self Storage facility

GTIS Partners acquires 70% of Brazil Hospitality Group (BHG)

New York’s real estate private equity firm GTIS Partners, announced

the successful conclusion of its US$400 million tender offer for the

acquisition of 70% of the shares of Brazil Hospitality Group (BHG),

one of the largest hotel chains in Brazil, which own and operate 52

hotels. “The BHG transaction is the largest in GTIS’ history and

reflects our conviction that Brazil currently offers a unique

combination of near-term distress, coupled with medium and long-

term growth”, said Josh Pristaw, Senior Managing Director and Co-

Head of GTIS Brazil. “It is a very compelling time to have an

established platform in Brazil and capital to allocate”, he added.

Brazilian hospitals attract foreign private-equity funds

New legislation allowing foreigners to invest in Brazilian hospitals, in

effect since January 2015, is attracting large private-equity firms to

the sector, such as Advent, KKR, Goldman Sachs, TPG and Apax.

According to Valor, these groups are negotiating with at least three

companies (Grupo Vita, Mater Dei and Santa Joana). Recently,

Carlyle Group paid R$1.8bn for 8.3% of Rede D’Or, the largest

hospital group in Brazil.

Global real estate investors bet on Brazil

Brazil is attracting large international players to the country’s real

estate market, as they see the current macroeconomic environment

as an opportunity to find good deals. Brookfield is raising an US$1bn

fund. Blackstone has made two acquisitions recently and is opening

its own office in the country. J.P. Morgan, through its Brazilian

subsidiary Gávea, is raising an US$200 million fund. Tishman Speyer

has recently bought a site in Porto Maravilha (Rio de Janeiro) where

it plans to develop 1,000 residential units. “The country has some

core strength that hasn’t changed despite the current challenges”,

said Rob Speyer, of Tishman Speyer.

Self Storage: a growing market in Brazil

In a recent article from Brasil Econômico, the newspaper points out

the growing number of small and medium sized businesses that opt

for self storage solutions. The article mentions that the self storage

market is still small in Brazil, with only 145 facilities (vs over 50,000

in the USA). According to Flavio del Soldato, president of the

Brazilian Self Storage association, there is plenty of room to grow

and any Brazilian city with more than 150 thousand inhabitants is

attractive for the Self Storage business. This amounts to almost 200

cities across Brazil. Currently, the metropolitan area of São Paulo

accounts for 38% of the total existing leasable Self Storage area,

while Rio de Janeiro accounts for only 9%.

Sources: The Wall Street Journal, The Washington Post, Forbes, Business Wire, Valor International, Valor Econômico, Brasil Econômico, Folha de S. Paulo, Estadão, The Rio Times and Senado Federal.

PROLIFICO UPDATE

Prolifico is currently expanding its investment team. It also plans to

open up a New York office by September 2015

Moby’s flagship self storage asset in Rio will get approval for 40%

more gross built area than was originally underwritten. Full planning

permission / entitlements are due next month.

Moby has compiled a pipeline of assets totaling US$100 million+,

consisting of distressed, as well as ground-up developments. All

assets are ready to purchase, develop and retrofit. Prolifico is

currently conducting talks with a number of interested investors.

ZAK obtained planning permissions on a site in Rio to develop a 100

room SmartHotel.

ZAK has initiated talks to develop a large student housing asset in

Rio.

ZAK has been requested by a US investor to put together a pipeline

of assets for rolling out its student housing platform.

Full planning submitted to retrofit an office building into a senior

living home on one of Prolifico’s F&F Fund assets.

Months since inception Asset appreciation

F&F Fund 46 (+245% / 3.5x)

São Paulo Self Storage Fund 32 (+222% / 3.2x)

Rio Self Storage Fund 18 (+64% / 1.6x)

Trancoso Beach Fund 42 (280% / 3.8X) Underlying assets valued as at 31st December 2014 by KPMG Avaliações Patrimoniais Ltda / NAI Miami

Student Housing & Smart Hotels

KEY ECONOMIC DATA

GDP Q1 2015 (YOY) - 0.9% US Dollar 1 R$ 3.14

2015 4 2016

4

Benchmark Interest

Rate (Selic) 1

13.75% Dollar

variation YTD 3

+18.1% GDP -1,50% 0,50%

Inflation - IPCA

June’15 2

8.89% British Pound

1

Euro 1

R$ 4.89

R$ 3.42 Selic 14,50% 12,25%

IBOVESPA

Year to Date 1

+6.12% Unemployment

(PME) May’15 6.7% US Dollar R$ 3,23 R$ 3,40

IBOVESPA

change June’15 +0.61%

International

Reserves 1

US$ 370

billion Inflation 9,12% 5,44%

1.

2.

3.

4.

As of July 16th 2015

twelve month period variation of the price of 1 USD in BRL terms (as of July 16th 2015)

projections for year-end, as of July 10th 2015, according to the focus bulletin of the Central Bank (median of market expectations)

Source: Brazilian Central Bank, IBGE, IPEA, Google Finance and Portal Brasil. (Data as of July 15th 2015 or the most recent available)

Prolifico is an alternative real estate & private equity investment management firm in Brazil. The company invests in high

yielding real estate backed business models that are resilient in all macroeconomic scenarios, such as self storage,

student housing, senior living and data centres. http://www.prolifico.com.br/

LEGAL DISCLAIMER: No representation or warranty, express or implied, is given by Prolifico, their respective advisers or any of their respective partners, directors or employees or any other person as to the accuracy or completeness of the contents of this overview. Neither this overview nor any of the information contained in it shall constitute an offer, invitation or inducement to purchase or acquire any shares or other assets.