Competitive Advantages

Direcional believes its business model places the Company in a privileged position to benefit from growth prospects in the development of projects targeting the low income segment. Direcional‘s competitive strengths include:

EXPERIENCE IN, AND FOCUS ON, THE LOW INCOME SEGMENT

Direcional has more than 41 years of experience in development and construction of projects targeting the low income segment, merging a successful track record and in-depth knowledge of this market, the customers, the products and the competitors. Our experience enables to develop products that meet the needs of target market, with competitive high-quality projects and attractive prices and payment terms.We have a management team with solid experience in the development and construction of Popular Enterprises, having been responsible for the development of more than 320 projects, distributed in 45 Brazilian cities.


                
SOLID PRESENCE IN UNDERDEVELOPED AND PROFITABLE MARKETS WITH SIGNIFICANT GROWTH POTENTIAL

Direcional operates in several cities, located in eight states (Amazonas, Bahia, Ceará, Goiás, Minas Gerais, Pernambuco, Rio de Janeiro and São Paulo) and the Federal District of Brazil.  We have a strong presence in the North and Midwest of Brazil, which are underdeveloped markets with fewer competitors. These regions have high housing deficits and substantial potential for growth and economic development. In 2006, began operations in the North region of Brazil, and believes to have reached a leading position the low income segment in housing development in the city of Manaus. In the Midwest region of Brazil, Direcional has operations in the Federal District since 1989 and has a strong presence there.These regions have a high housing deficit and a high formal employment rate, two key factors for successful sales in the Casa Verde e Amarela Program. We believe that we are in a differentiated competitive position in most of the regions in which we operate, since we compete primarily with companies that do not have construction technology, construction team and scale compatible with ours. Our success in entering these markets allowed us to acquire the knowledge necessary to conquer markets with strong demand for Popular Enterprises, such as the city of Rio de Janeiro and cities located in the countryside of the state of São Paulo.

DEVELOPMENT OF COMPETITIVE PRODUCTS ON A LARGE-SCALE

Direcional efficiently develops large-scale lower-middle income residential projects, incorporating certain degrees of standardization in the construction process, in each case according to the needs in each region where Direcional operates. The development housing projects in a large scale model allows to: (i) optimize construction processes, making it easier to maintain control over the management, logistics and operations of each project; (ii) perform the industrialization process of raw materials at actual work sites, such as concrete and pre-molded mortar block factories; (iii) obtain operating leverage, resulting in the dilution of the fixed costs; and (iv) develop completely urbanized projects, with full utility infrastructure, increasing units’ attractiveness to the customers.

The launching of large-scale housing projects targeted at the low income segment is accomplished in phases. This phased approach enables Direcional to make adjustments in the project when needed in order to respond to the velocity of sales, and also to implement improvements in the construction process even after the launch a project. The large-scale projects targeted at the low income segment launched in the period between July 1, 2017 and June 30, 2022 represented 75% of the number of Launched Units and 83% of Launched PSV (corresponding to our proportional share) in that period. As of June 30, 2022, the portion of our land bank dedicated to the development of Large Popular Developments represented 86% of the total potential Units, which corresponds to approximately 134 thousand Units.

VERTICALIZED STRUCTURE AND STANDARDIZED CONSTRUCTION PROCESS

As a result of Direcional‘s vertically integrated business model, the Company is able to coordinate and integrate all phases of the process of real estate development and construction, from land searching for and purchasing, through the construction stage, to selling and delivering units.We adopt an industrialized construction method using aluminum forms, which allows a high degree of standardization and greater construction speed, allowing the reduction of the construction cycle and of our business. The division of workforce into different, specialized teams enables Direcional to standardize its construction process and, in particular, to replicate the process efficiently on a large scale. The use of own workforce facilitates ability to meet deadlines, optimize worker productivity and have lower costs and higher quality control in the projects. Additionally, the use of our own labor in the process of selling our Units saves us in expenses with brokers’ commissions and sales costs. The adoption of this vertical model and the standardization of construction procedures allows us to execute vertical projects in the middle-income segment and low-income projects, within the Casa Verde e Amarela Program, especially large projects, since a standardized and integrated construction process contributes directly to the construction of units on a larger scale, distributed in a smaller number of projects. As a result, Direcional is able to concentrate its PSV in fewer projects, further facilitating the effectiveness of the project management efforts and allowing to benefit from economies of scale.

ABILITY TO OPERATE IN ALL INCOME SEGMENTS WITHIN THE CASA VERDE E AMARELA PROGRAM

Direcional believes to have a differentiated position to operate in the program Brazilian federal government‘s Casa Verde e Amarela Program. As of December 31, 2012, more than 75,1% of the PSV in the land bank were eligible to families with monthly income range of up to 10 minimum wages, representing about 49,800 units. The Company has a history of successful experience in implementing similar housing programs, such as PAR and BNH. This experience enables Direcional to operate profitably in all income brackets of the Program, including the segment of family monthly income of up to three minimum wages, the main benefit from the program.

EFFICIENT OPERATING CYCLE AND GREATER RETURN ON SHAREHOLDERS’ EQUITY

Direcional maintains a disciplined approach to the use of capital and the purpose of integrated business model is to optimize returns on shareholders’ equity. The financial planning is based upon the following guidelines: (i) exchange housing units for land when possible as an alternative to the disbursement of cash for the purchase of land (80% of our land bank was acquired through swaps); (ii) provide financing options for units pursuant to which we receive a significant portion of the purchase price prior to completion of the project in which the sold unit is located; (iii) obtain pre-approved credit facilities to finance construction, decreasing cash exposure during the construction period; and (iv) efficiently transfer receivables to financial institutions. In addition, standardized construction process enables us to reduce and optimize the construction cycle of projects, while increasing efficiency.