JHSF

An investment in securities involves a high degree of risk. All investors should carefully consider the following factors in addition to the other information in this investor relations website before investing in JHSF’s securities. In general, investing in the securities of issuers in emerging market countries, such as Brazil, involves a higher degree of risk than investing in the securities of U.S. issuers or issuers in other countries with highly developed capital markets. JHSF’s business, financial condition, results of operations and prospects may be materially adversely affected by any of these risks.

The risks briefly described below are those that the Company currently believes most likely may materially affect its performance.

We are exposed to the risks associated with the development, building, leasing, and sale of real estate property.

The Company is active in the real estate development, sale, and leasing businesses, involving residential and office buildings, as well as shopping malls and mixed-used projects. We intend to stay in these businesses. The real estate industry in general is affected by risks such as interruptions in the supply of equipment and building material, price fluctuations, varying supply and demand for projects in given areas, labor strikes, and zoning and environmental regulations. In addition to these, the Company’s businesses are also particularly affected by the following risks:

- Brazil’s economic outlook, which may harm the growth of the real estate industry as a whole because of an economic slowdown, rising interest rates, foreign-exchange variations, and political instability;

- Because of new regulations or market conditions, in the future the Company may be prevented from indexing its accounts receivable according to some inflation indexes, the practice currently employed; such change could render a project unfeasible in economic or financial terms;

- The company has to meet regulations pertaining to zoning, urban occupancy, and soil use, and it may not secure all necessary licenses to ensure such compliance;

- The level of interest of buyers in a new project introduced or the selling price of a property unit necessary to sell all units may be significantly lower than the expected level; this will render the project less profitable and/or lead to the price of the units on sale being substantially lower than planned;

- In case a big player in the real estate industry went bankrupt or suffered a financial crisis, the whole market could be adversely impacted, undermining customer confidence in other companies of this industry;

- Local or regional real estate market conditions can vary, such as a drop in demand for homes, offices, or stores in a given area;

- Buyers may have a negative perception regarding the security, convenience, and attractiveness of our properties or regions where they are located;

- Rising operating costs, such as the need to improve our capital structure, insurance premiums, real estate taxes, and utility costs could all affect the Company’s profit margins;

- Adverse economic situations or other events could result in many of our clients falling behind in their payments;

- The Company could be affected by the lack of well-located land for the development of our projects;

- Lack of development opportunities; and

- Failing to meet the timeframe set for the construction and sale of real estate units or any phases of the projects could result in higher costs or some buyers canceling their sales agreements.

Any of the events above could adversely impact our operating earnings. Moreover, the fact that the Company owns stores means that it is affected to factors that impact the retail business in general, such as consumer spending levels, willingness of retailers to rend stores in our shopping malls, consolidation of retailers, and bankruptcy of tenants.

Additionally, buyers are entitled to cancel the sales agreements without incurring in any fines and having most of their payments back, including inflation, if the properties are not delivered within 180 days of the scheduled dates (except, of course, in case of force majeure). We have not guarantees that such delays will not happen in the future. According to Brazilian legislation, the Company offers a limited five-year warranty to cover structural defects; this could result in claims from buyers.

We could incur unexpected costs and delays in the conclusion of projects.

Our activities involve the development, sale, and leasing of office and residential towers as well as of shopping malls, and the development of mixed-use projects. Among the key risks involved in our projects are costs above budget and failing to comply with real estate conclusion and delivery timeframes. In some cases, the Company will bear these risks, which could result in us having to advance resources to cover costs above budget and/or delaying the inception of revenues from lease and sales. These factors could reduce return rates for some projects and/or negatively impact our operating earnings.

Availability and cost of suppliers

The Company is subject to the availability of suppliers, including interruptions in the supply of equipment, labor, and construction material, in addition to price volatility, changes in the supply and demand of services and equipment for projects in some areas, and labor strikes. All of these can adversely impact our capacity to conclude the projects within the time and costs planned, which in turn can have a negative effect on our financial situation and operating earnings.

Brazil’s real estate market is highly competitive, which could affect our profitability

Brazil has a highly competitive and fragmented real estate industry. There are no major barriers to entry for new players in this market. Key competitive factors in the real estate development business are price, funding, design, quality, reputation, and partnerships with business entrepreneurs. Other companies, including foreign organizations, through alliances with local partners, can place a foothold in the Brazilian real estate development industry in the next few years. This would increase our competition if one or more of these new players launch a successful campaign to sell properties in the same segments we operate. If they enjoy successful sales, our business could be adversely impacted.

At the same time, we have seen many store leasing alternatives that compete with our shopping malls in attracting storeowners. Stores in our properties continually face competition from street stores, smaller shopping centers, outlet centers, wholesale and discount clubs, direct mail, telemarketing, television shopping, and online shopping. Moreover, because of existing agreements, stores that lease space in competing malls close to our own projects may have contractual restrictions that prevent them from leasing space in our own malls.

If we are not able to respond as effectively and rapidly as our competitors, our financial situation and operating earnings could be adversely affected.

If the applicable authorities cancel our concession, we could be prevented from realizing the asset’s full value.

The concession we hold at Shopping Metrô Tucuruvi is subject to advance rescission under some circumstances. The authorities that granted the concession may rescind it before it runs its full course alleging we have failed to comply with the terms of the concession or also in case of bankruptcy, reorganization or liquidation of the Company. In our concession contract is rescinded, the assets, including buildings and betterments, will revert to the granting authority. The Company would be entitled to indemnity for the value of any assets that would not have been fully amortized according to the terms of the concession. If we fail to comply with the terms and conditions of the concession contract, the actual indemnity could be reduced substantially, possibly to nil, by fines or other penalties. Thus, in the case of an advance rescission, the amounts payable to the Company may not fully offset our business interruption losses or the investments made during the time of the concession.

The total number of outstanding common shares issued by the Company is below the minimum 25% of our capital stock required under New Market regulations.

The total number of outstanding common shares issued by the Company, 18.9%, is below the minimum 25% of our capital stock required under Novo Mercado regulations. The Company is expected to meet this requirement by March 31, 2012. But there are no guarantees that we will be able to meet this deadline set by BMF&Bovespa, which may impose sanctions on the Company, ranging from having our shares listed separately and suspending their trading on the New Market to an outright cancellation of the trading permit for our shares on the New Market.

We may not be able to fully carry out our business strategy.

We have no way of ensuring that any of our future goals and strategies will be fully carried out. Consequently, we may not be able to expand our activities at the same time we replicate our business strategy, developing our growth strategy in order to meet demand in the different markets. Failing to successfully develop our projects could impact the direction of our business policy, which in turn could have an adverse effect on the Company.

The loss of a high-ranking officer or the inability to attract and maintain new executives could have a major adverse effect on the Company’s financial situation and operating earnings.

Our capacity to maintain a competitive position largely depends on the effort of our high management. No Company executive is under long-term employment contract or non-compete agreements. We may fail to successfully keep our current team of qualified top managers or to hire new executives. The loss of the services provided by our high-ranking officers or the inability to attract and maintain new executives could have a major adverse effect on the Company’s financial situation and operating earnings.

We depend on the leasing of retail and office space under conditions that are economically favorable to us and on actually receiving the rents, which tenants may not be able to pay.

Considering that part of our profits stems from leasing retail and office space, our operating earnings may depend on our capacity to lease these properties under economically favorable conditions.

We may grow through acquisitions that involve risks, which in turn may affects us adversely.

In our industries, we may acquire news businesses that present attractive opportunities. Such acquisitions may involve risks that could have a negative impact on the Company, e.g.:

• Drop in operating earnings;
• Legal contingencies or unexpected issues; and
• The inclusion of incompatible operations.

We may also fail to realize the expected benefits from such acquisitions, because the new businesses may produce margins below our existing businesses if we do not manage to integrate them into our existing operational structure, face difficulties in merging the two labor forces, or are unable to make the necessary investments in the new businesses. The acquisition of new businesses and their performance below expected levels could affect us adversely.

Our growth may require additional capital, which may not be available or, if available, at conditions not satisfactory to the Company.

Our operations require substantial volumes of working capital. We may be forced to raise additional capital, whether by offering shares or bonds or via bank loans to pursue the growth of our businesses. We have no guarantees that such additional capital will be available, or, if available, at satisfactory conditions. Failing to have access to additional capital at satisfactory conditions my hinder future growth and development of our businesses, and could have a major adverse effect on the Company’s financial situation and operating earnings.

The interests of our controlling shareholder may diverge from those of our minority shareholders.

Our controlling shareholders have powers that include electing a majority of the members of the board of management and determining the result of any act that requires shareholder approval, including related-part transactions, corporate restructuring, disposals, associations, the schedule of dividend payment, always in accordance with the requirement for minimum dividend payment set by Brazil’s business corporation law. Even if our minority shareholders have tag-along rights, related with the disposal of the Company’s control and specific protections associated with transactions between the controlling shareholder and related parts, our controlling shareholders may be interested in pursuing acquisitions, disposals, associations, financing, or similar transactions that may differ from the interests of our minority shareholders.

We are a holding company and we depend on the earnings of our subsidiaries; we cannot guarantee that these earnings will be distributed to the Company.

We are a holding company that controls several companies mainly in the real estate and retail industries. Our capacity to meet our financial obligations and distribute dividends to our shareholders depends on the cash flow and profits of our subsidiaries, as well as the distribution of these profits to the Company in the form of dividends, including interest on the capital stock. There is no guarantee that these resources will be made available to the Company or that they will be sufficient to meet our financial obligations and distribute dividends to our shareholders.

The lack of available financing and/or rising interest rates may adversely affect the capacity or the willingness of potential buyers to finance their real estate purchases.

A shortage of funds in the real estate loan market and/or rising interest rates may adversely affect the capacity or the willingness of potential buyers to finance their purchases. This would reduce the demand for our residential and office properties, as well as for our mixed-use projects, in turn substantially impacting our financial situation and operating earnings.

We are subject to risks normally associated with financing.

The Company finances the purchases of its residential properties using installment payments that (i) during the construction phase are indexed to the INCC index, as measured by FGV; and (ii) after the local authorities issue the living permits, are subject to interest and inflation adjustment according to the IGP-M index. We are subject to the risks normally associated with such loans, such as the risk of delinquency of the principal and of the interest and the risk of having higher funding costs, which could adversely affect our cash flow. According to Brazilian law, except for some exceptional cases for delinquency after the property is delivered to the new owner, we are entitled to sue for the amounts in arrears and file for repossession of the property in question. However, court awards in such suits usually take at least two years. Moreover, after the Company regains possession of the property, it usually sells it at a price lower than the original sale price. Thus, we have no guarantees that we will recover the full outstanding amount under any installment plan if the buyer defaults, which could have an adverse affect on our financial situation and operating earnings.

The fact that our shopping malls are public areas could have consequences that escape the control of the management and could cause severe damage to the image of our malls and even incur liability on the Company.

As public spaces, our shopping malls are subject to a series of accidents within their premises. These could escape the control of the mall’s management and their prevention policies, causing damage to shoppers and users. Should such accidents occur, the shopping mall involved would face series image and physical damages in result of buyers avoiding the location because of mistrust and a feeling of insecurity. Moreover, accidents can also impose legal liability and/or the obligation to indemnify the victims, which could have an adverse impact on the Company.

The real estate development and shopping mall businesses are heavily regulated, which could increase our costs, curb our development, or otherwise adversely affect the Company.

In Brazil, the real estate development and shopping mall businesses are heavily regulated in terms of buildings, zoning, location, and condominium, by federal, state, and local authorities. This affects the acquisition of land, development, construction, and shopping mall operation because of zoning restrictions and the need for licenses. Other regulations and consumer protection codes also apply. Since we need the approval of different government authorities in our real estate development and shopping mall businesses, our operating earnings could be adversely impacted by new laws and regulations or the way in which they are interpreted.

Our operations are also subject to environmental laws and regulations in the federal, state, and local spheres. Environmental laws could delay our projects and demand substantial costs for their compliance. They could also ban or restrict residential or office development in environmental protection areas. Regulations governing the Brazilian real estate sector and environmental laws tend to become more severe and this could have a negative and significant impact on our operating earnings.

The location of our properties is subject to specific conditions that could represent risks to our businesses or have an adverse impact on our operating earnings.

Lease agreements between the Company and tenants are subject to specific laws that under some circumstances give tenants certain rights, even court-ordered contract renewals. These mandatory contract renewals present two risks, which could adversely affect our businesses and financial and operating results: (i) if we desire to vacate an area occupied by a tenant, in order to renovate the area, this tenant could file suit and manage to stay in the property; and (ii) in such suit, both landlord and tenant can request to court to review and set a fair lease price, according to market value. This renders us subject to court interpretation and decision and ultimately could result in the Company earning less from its lease agreements.

Holders of common shares may not receive dividends on interest on the Company’s capital stock.

According to Company charter, we must pay our shareholders mandatory dividends equivalent to at least 25% of our adjusted net profits, in the form of dividends and/or interest on the Company’s capital, all computed according to Brazil’s business corporation law. Such adjusted net profit may be capitalized, used to absorb losses, or maintained in a reserve, as provided by the business corporation law. This reduces the amount available for paying dividends or interest on capital stock. Moreover, according to business corporation law, a public company like ours does not necessarily have to pay dividends to its shareholders in a given fiscal year if the board of management informs shareholders that the payment of dividends is not recommended because of the Company’s financial situation.

The remuneration policy of our executives is closely linked to the Company‘s performance and results, which can lead to direct our management and our business activities with greater focus on generating short-term results.

Our remuneration policy has a variable compensation program and a stock option program. The fact that a significant portion of compensation for our executives is closely linked to the Company‘s performance ands results may lead the managers to direct our management and our business activities with greater focus on generating results in the short term, which may not coincide with the interests of our other shareholders who have a vision of long-term investment in relation to our actions.