Investing in shares of a real estate investment fund is considered a risk investment and investors are subject to the risk of incurring asset losses due to the liquidity of the shares, the volatility of the capital markets, and the properties comprising the Portfolio, among others. Investments made in the Fund are not guaranteed by the Administrator, Manager, any insurance mechanism, or the Credit Guarantee Fund (FGC), and investors are subject to the loss of the total invested capital.
The Brazilian real estate sector is subject to extensive regulations issued by several federal, state, and municipal authorities, which affect the acquisition, sale, lease, renovation, and expansion of real estate properties, among others. Therefore, eventual renovations and expansions of real estate properties, as well as the activity carried out by the tenant of a certain property, may be required to obtain or renew specific licenses, approval by government authorities, and may be limited due to building and zoning rules, as well as laws and regulations referring to consumer protection. In this context, laws and regulations that currently exist, or that may be created as of this date, may adversely affect the activities and profitability of the Fund.
The value of the Real Estate Properties that comprise the Fund’s portfolio may increase or decrease according to price fluctuations, market prices, and any assessments carried out in compliance with applicable regulations and/or the Regulation. In the event of a drop in the value of the real estate properties, the gains arising from the eventual sale of the properties belonging to the Fund, its lease revenue, and the trading price of the Shares on the secondary market may be adversely affected.
In addition, as the Fund’s resources are intended for investment in real estate properties, a key factor that must be considered in relation to the Fund’s profitability is the medium and long-term economic potential of the region where the properties in the portfolio are located. Assessments on the economic potential of the region must consider not only the current economic potential, but also the evolution of the economic potential of the region in the future, in view of the possible economic decline in the region, which would cause a direct impact on the value of the real estate properties and, consequently, on the Share price.
Revenue estimates for the Fund’s operations are based on the duration of the existing lease contracts. If lease contracts are terminated by the tenant, or the renewal of lease contracts do not occur, or if they are renewed at lower-than-expected amounts, expected revenues may not materialize in full, therefore causing an adverse affect on the Fund’s results.
In addition, if any lease contract is terminated or not renewed by the respective tenant on the expiration date, the Fund may have difficulties in leasing the property under the same or more favorable conditions than the previous lease contract that was terminated and/or not renewed, and the Fund may also have difficulty in finding a new tenant in the short and medium term. In these hypothetical situations, the Fund’s business and results may suffer adverse affects.
The profitability to be distributed to shareholders will depend on the result achieved with the management of the real estate assets under the Fund’s portfolio. Therefore, the amounts to be distributed to Shareholders will depend directly on the income from the sale, rentals, and leases of real estate properties to tenants, as well as the costs incurred by the Fund.
The Fund may be required to dedicate a substantial part of its cash flow to pay obligations and thus reduce the cash available to be distributed to Shareholders, which may adversely affect the market value of the Shares. Investments made by the Fund are not guaranteed by the Administrator, Manager, any insurance mechanism, or the Credit Guarantee Fund (FGC) to reduce or eliminate the risks it is exposed to, and, consequently, the risks the Shareholders may also be exposed to. Considering that FII funds are long-term investments, the Fund is subject to losses greater than the invested capital and Shareholders may be required to contribute additional resources to cover the losses incurred by the Fund, according to the limits imposed by applicable regulations.