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Propuesta

The Spanish REIT business: SOCIMI

[email protected]

Autor: Manel Hernandez HP [email protected]


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Heres a proposal that could help solvin the

toxic-asset pricing problem

voluntarily without requiring the

whole industry

and make (pretty much) everyone a winner.


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REIT concept eg s a on Who could be interested in Why HP solutions Business process: Finance + Legal advisors

IT Solution What is next?


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Introduction:

investments, and related liabilities. High risk of default credit.

an s w ncreas ng a e s Banks balance sheets need to be cleared out. Necessity of profitability on RE investments while diversifying their

usiness mo e . ECB and local EU Governments need to stabilize and reactivate the EU

financial system


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The origins of REIT : When a bank faces an insolvency from a mortgage credit debtor, it can be negotiated to recover the

RE asset while clearing out the credit. Finally when there is no other way it will be classified as baddebt.

When a credit is classified as bad debt banking authorities forces to provision the same amountwhich could generate treasury tensions on any bank.

To provide an alternative solution most EU government are improving the REIT conditions, while inpa n e en ra overnmen s se ng up a new on crea ng .

A Real Estate Investment Trust or REITis a tax designation for a Corporation investing in Real

Estatethat reduces or eliminatescorporate income taxes. In return, REITs are required to distribute, , .

designed to provide a similar structure forinvestmentin real estate as mutual fundsprovide forinvestment instocks.

Like other corporations, REITs can be publicly or privately held. Public REITs may be listed on publicstock exchanges like shares ofcommon stockin other firms.

The legislation goal is to reactivate the financial markets by gaining ontransparency.

REITs have existed in the USA since the 1960s. The were later introduced in other countries, such asthe Netherlands, Australia, Canada, Japan, Belgium, Germany, France, sometimes in modified form.


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In order to qualify for the advantages of being a pass-throughentity for U.S.corporate income tax, a REIT must:

Be structured as corporation, trust, or association Be managed by a board of directors or trustees Have transferable shares or transferable certificates of interest

UnitedStates

Otherwise be taxable as a domestic corporation Not be a financial institution or an insurance company

Be jointly owned by 100 persons or more Have 5 ercent of its income derived from dividends interest and ro ert income Pay dividends of at least 90% of the REIT's taxable income No more than 50% of the shares can be held by five or fewer individuals during the last

half of each taxable year (5/50 rule) At least 75% of total investment assets must be in real estate Derive at least 75% of gross income from rents or mortgage interest No more than 20% of its assets may consist of stocks intaxable REIT subsidiaries.


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In order to qualify for the advantages of being a

ass-throu h entit for S ain cor orate income tax a

Minimum capital: 15m 18% taxable corporate profits

REIT must: EuropeanUnion

Maximum financial leverage: 70% Be structured as corporation, trust, or association

Be managed by a board of directors or trustees Have transferable common shares Otherwise be taxable as a domestic corporation No financial institution or insurance company Be jointly owned by 5 persons or more Have 85 ercent of its income derived from dividends interest and ro ert income Pay dividends of at least 90% of the REIT's taxable income At least 85% of total investment assets must be in real estate Tax advantages can be applied two years before meeting qualifications through a single

declaration. REITs are known in Spain as SOCIMI.


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REIT = Real Estate Investment Trust

stocks market value byrom um er o an a e pec a za on sec or

Australia 1971 70U 100.000 M

(2008) No dataLey 8668/1993

Fundos de Investimentom o r o

United Industria/oficinas 2.400Kingdom Retail 400

Sanidad 400

Mixtos 15.0002007

Finance Act 2006.

(Efectiva en 2007) 21

GBP 21.800

(Sept. 2009)

raz o ata o ata o ata

REIT- Aktiengesellschaft- oc t

dinvestiment ImmobiliareCot

l'article 11 de la loi definances n 2002-1575 du 31,000

Germany

United Industry 92.000States Retail 100.000

Residential 57.000Leisure resorts 11.000

Logistics 14.0001960 262 USD $539.000(Aug 2009)

Health 28.000Other areas 13.000

mixed 206.000

Figures in milions of the respective currencySource: HP from market data


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Who may be interested in? Financial organizations with large stocks of mortgages and RE assets. Banking managers : to concentrate their activities on their core banking by setting out of

their Balance Sheet, RE investments, or their participations as shareholders of RE subsidiaries Family Offices / Investor Groups Hotel chains Health: Hospitals, Nursing homes Country regulators : To reactivate RE market and bring transparency on RE deals and on

their financing.

Key ratios: This may be an interesting option because: frees up potentially low-profit capital that has been tied up in real estate,

and allows it to be reinvested in core business areas and used to increase the

equ y ra o. Provide an accountable market mark up on RE investment through contract

cash flow valuation Increase wor ing capita eve s assets

Arises customers accountability through transparent operations regulation.


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REIT Added value:entire flow coverage

RE insolvency

PhasesClaims, underpayment, and theircommunication and activities management

RE debt recoveringnegotiation

Legal procedures and communications acrosscountries, auctions, portfolio monitoring.

RE salesDistribution channels support. Results orientedsolution.

RE lease out

RE

ease ou managemen . rom expenses oconditions and condominium groups.

Investment management. Wholesales

nvestmentFunds

REITInvestment management. Retail / Private

Investors


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IT REIT Solution:ModulesShareholdersManagement (1)

GestinProyectos

Constructores

Leasing / Contracts

ConsolidatedAccountancy BI

Investors/TaxesManagement (1)Controlling

Legal / StatutoryRe ortin

Dispute

management

REMaintenance Treasury

Mailing / Legal

Call CenterCalls

AccountingIAS / USGAAP

AssetsHuman GL

LoansMailing / Notarized docs

Tenant / Investor

ManagementResources Suppliers

CRMSales Based on Standard software:

SAP ERP 6.0Distribution channels

Management SAP BI 50 supported languages

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