Direcional Engenharia : 3Q18 Operational Preview

OPERATING PREVIEW

3Q18

Belo Horizonte, October 09th, 2018 - Direcional Engenharia S.A., one of the largest homebuilders and real estate development companies in Brazil, focused on developing large scale low-income projects, and operating in all regions of the Brazilian territory, discloses here its operating statements for the third quarter of 2018 (3Q18). Except when indicated otherwise, all the amounts presented in this document are expressed in local currency (Brazilian reais - R$), and the Potential Sales Value (PSV) demonstrates the consolidated number (100%).

NOTICE TO THE MARKET

IN 9M18, DIRECIONAL ANNOUNCES LAUNCHES OF R$ 1.4 BILLION, A GROWTH OF 122% YoY. FOR THE SAME PERIOD, MCMV 2 AND 3 LAUNCHES REACHED

R$ 1.2 BILLION, A GROWTH OF 135%.

OPERATING EVOLUTION IN THE MCMV 2 AND 3

The charts below show the Company's operating evolution in the MCMV 2 and 3 segment. Worth noting is that over the last 12 months launches accumulated more than R$ 1.6 billion and sales amounted to R$ 1 billion, a growth of 88% and 74% compared to the same period of last year.

Launches

Net Sales

(PSV 100% - R$ million)

(PSV 100% - R$ million)

+74% 1.609

3Q17 LTM

4Q17 LTM

1Q18 LTM

2Q18 LTM

3Q18 LTM

3Q17 LTM

4Q17 LTM

1Q18 LTM

2Q18 LTM

3Q18 LTM

LAUNCHES

In 3Q18, Direcional launched nine projects/phases. All developments launched are targeted on families eligible to MCMV Program (one of them under Level 1), totaling a PSV of R$ 524 million (R$ 419 million % Direcional) and 3,275 units, a growth of 356% compared to last quarter.

In the accumulated for 9M18, launches totaled PSV of R$ 1.4 billion, a growth of 122% compared to 9M17. Highlight to MCMV 2 and 3 segment with a growth of 135% compared to the same period of last year.

The table below shows information about the developments launched in 2Q18:

3Q18	2Q18	3Q17			9M18	9M17
Launches (VGV - R$ mil)
	(a)	(b)	(c)	(a/b)	(a/c)	(c)	(d)
PSV launched - 100%	524,463	366,245	115,290	43.20%	354.90%	1,372,266	618,020	122.00%
MCMV Level 1	47,876	0	0	n/a	n/a	182,909	112,477	62.60%
MCMV 2 and 31	476,587	366,245	115,290	30.10%	313.40%	1,189,358	505,543	135.30%
MUC2	0	0	0	n/a	n/a	0	0	n/a
PSV launched - % Direcional	419,258	366,245	115,290	14.50%	263.70%	1,222,062	529,118	131.00%
MCMV Level 1	47,876	0	0	n/a	n/a	182,909	112,477	62.60%
MCMV 2 and 3	371,382	366,245	115,290	1.40%	222.10%	1,039,153	416,641	149.40%
MUC	0	0	0	n/a	n/a	0	0	n/a
Units launched	3,275	2,104	740	55.70%	342.60%	8,572	4,524	89.50%
MCMV Level 1	544	0	0	n/a	n/a	1,905	1,300	46.50%
MCMV 2 and 3	2,731	2,104	740	29.80%	269.10%	6,667	3,224	106.80%
MUC	0	0	0	n/a	n/a	0	0	n/a
% Average Direcional	79.90%	100.00%	100.00%	-20.1 p,p,	-0.2 p,p,	89.1%	85.60%	3.4 p,p,
Average Price (R$/units)	160,141	174,071	155,797	-8.00%	2.80%	160,087	136,609	17.20%
MCMV Level 1	88,007	n/a	n/a	n/a	n/a	96,015	86,521	11.00%
MCMV 2 and 3	174,510	174,071	155,797	0.30%	12.00%	178,395	156,806	13.80%
MUC	n/a	n/a	n/a	n/a	n/a	n/a	n/a	n/a

(PSV 100% - R$ million)

3Q17

115

2Q18

MUC¹MCMV level 1MCMV 2 and 3

• 1. MCMV 2 and 3: developments carried out under the Minha Casa Minha Vida Housing Program (MCMV) - Levels 1.5, 2 and 3.

• 2. MUC: Comprises projects from the middle-income, upper-middle income and commercial segments.

Launches

3Q18

9M17

9M18



(c/d)

CONTRACTED NET SALES

In 9M18, net sales amounted to R$ 1.2 billion, growth of 85% YoY. The MCMV 2 and 3 segment reached PSV of R$ 806 million, a growth of 77% compared to 9M17.

In 3Q18, net sales amounted to R$ 549 million. It is important to note that, regarding this amount, R$ 230 million refers to the inventory sales to BMAC11 REIT held in September. Therefore, compared to the same period of last year, net sales grown 150%.

Important to notice that all launches occurred in September, in the last 15 days of the month, with a reduced schedule to units sales. Therefore, net sales reached R$ 8 million.

• 1- Market value of inventory at liquidation date.

  Net Sales

  (PSV 100% - R$ million)

  198

  647

  1.253

  3Q17

  40 158

  549

  23Q0108

  3Q18

  9M17

  9M18

  Inventory Sale to REIT¹MCMV level 1

  MUC²

  MCMV 2 and 3

• 2- MUC: Comprises projects of the middle-income, upper-middle income and commercial segments. The MUC segment units of the inventory sold to BMAC11 REIT are accounted only for the first two months of quarter.

NET SALES VELOCITY

Net sales velocity in 3Q18, measured by the VSO (Net Sales over Supply) ratio, reached 13%. In the MCMV 2 and 3 segment, VSO reached 16%, impacted manly by the Launches VSO, which reached only 2%, regarding the launches concentration in the last 15 days of September.

VSO Net Sales of Development

(PSV 100% - R$ million)

2Q17

3Q17

Sales MUC

4Q17

Sales MCMV 2 and 3VSO QuaterlyVSO of MUC

1Q18

2Q18

3Q18

VSO of MCMV 2 and 3

Inventory VSO - MCMV 2 and 3

OPERATING PREVIEW

3Q18

INVENTORY

By the end of 3Q18, Direcional had 8,272 units in inventory, totaling a PSV of R$ 1.7 billion.

We highlight the share growth of MCMV 2 and 3 in inventory (77% vs. 48% in PSV, YoY), in line with company strategy to concentrate it operations in this segment.

The table below shows the inventory at market value as divided by stage of construction and type of product. Another highlight is the MCMV 2 and 3 segment, which has PSV of only R$ 37 million of units concluded, which represents 2% of total inventories.

Inventory by construction stage (% Total - R$ million)	MCMV 2 and 3	MUC¹	Total (100%)
Under Construction	1,257	44	1,301
% Total	74%	3%	77%
Finished Units	37	358	395
% Total	2%	21%	23%
Total	1,294	402	1,696
% Total	76%	24%	100%
Total Unidades	7,374	898	8,272
% Total Units	89%	11%	100%

Total

(% Direcional)

1,266 79% 330 21% 1,596 100% 8,272 100%

The following charts present more information about the breakdown and evolution of the inventory. The main highlights are: (i) 56% of PSV in inventory comprises projects launched in 2018; (ii) 73% is located in the Southeastern region of Brazil; and (iii) 29 p.p. reduction in MUC share in inventory, compared to 3Q17.

Inventory by Launch Period	Inventory by Region	Inventory Evolution
(% PSV - 100%)	(% PSV - 100%)	(PSV 100% - R$ million)
MCMV 2 and 3MUC¹	MCMV 2 and 3MUC¹	MCMV 2 and 3MUC¹

2018 2017

56%15%

Southeast

73%

North

15%1% 16%

<2017

Finished

4%	3% 7%	Midwest10%
2%	21%	Northeast1%

23%

48%	77%
52%
	23%

3Q17

3Q18

1 - MUC: Comprises projects of the middle-income, upper-middle income and commercial segments.

PROJECTS DELIVERED

In 3Q18, Direcional delivered two projects/phases, totaling 346 units and PSV of R$ 88 million (R$ 69 million % Direcional). R$ 49.7 million from MUC segment and R$ 38.4 million MCMV 2 and 3.

LAND BANK

In 3Q18, Direcional acquired nine land plots targeted at the MCMV 2 and 3 segment, with construction potential of 18,560 units and a PSV of R$ 3,5 billion (R$ 3,5 billion % Direcional).

These plots are located in the states of Rio de Janeiro, Ceará and São Paulo. The average cost of land was equivalent to 14.5 % of the PSV and 93.4% of the payment will be settled through swaps, which do not affect the Company's cash position in the short term.

OPERATING PREVIEW

3Q18

Statements contained in this document concerning the business perspective, projections of operating and financial results and references to the growth potential of the Company, are mere predictions and were based on expectations and Management estimates in relation to the future performance of the Company. While the Company believes that such forecasts are based on reasonable assumptions, it does not ensure that they are achieved. Expectations and estimates that are based on the future prospects of the Company are highly dependent on market behavior, Brazil's economic and political situation, of existing and future state government regulations, industry and international markets, and therefore, are subject to changes that are beyond the control of the Company and its management. The Company makes no commitment to publish updates or revise expectations, estimates and forecasts contained herein arising from information or future events.

CONTACTS

IR Team (+ 55 31) [e-mail]/ir

GLOSSARY

Land bank - land held in inventory with the estimate of future PSV of the same.

Classification of developments by Direcional, according to the economic segment to which they are intended:

MCMV - Level 1	Low-income projects under construction contracts regarding the Minha Casa Minha Vida Housing Program, contracted directly with the Financing Agent, for families with monthly income of up to R$ 1,800.00. The properties of this segment have the final price determined by the Financing Agent, under Ordinance 435/2012 of the Ministry of Cities, and their purchase may be conditionally subsidized by the government.
MCMV 2 and 3	Residential developments with cap price of up to R$ 300.0 thousand per unit, included in Levels 1.5, 2 and 3 of the MCMV Program. Until 3T15, projects of this profile have been called "Popular".
Middle income	Residential developments with average price ranging from R$ 300.0 thousand to R$ 500.0 thousand per unit.
Upper-middle income	Residential developments with average price of more than R$ 500.0 thousand per unit.
MUC	Comprises projects of the middle-income, upper-middle income and commercial segments

Swap - a system of land purchase whereby the owner of land receives in payment a determined number of units of the undertaking to be built on the land.

Contracted Sales - PSV arising from all real estate sales contracts concluded in a given period, including the sale of Units launched in the period and the sale of Units in Inventory.

PSV - Potential Sales Value (PSV) - The total value potentially obtained by the sale of all Units of a given residential development at the launch price. There is a possibility that the PSV launched is not realized or differs significantly from the Contracted Sales value, since the amount of Units effectively sold may be different from the amount of Units Launched and/or the actual selling price of each Unit may differ from the launch price.

PSV Launched: Potential Sales Value (PSV) of Units Launched over a given period.