THE Real Estate Investment Trust business or SOCIMI as known in Spain and a presentation of a REIT IT solution

1. Propuesta
The Spanish REIT business: SOCIMI
Author: Manel Hernandez
manfin2005@yahoo.com
Autor: Manel Hernandez – HP Consulting
Manel.hernandez@hp.com

2. A better way to fix banks
Here’s a proposal that could help solving the
g
toxic-asset pricing problem
voluntarily —without requiring the
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whole industry—
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3. Index
• REIT concept
• Legislation
L i l ti
• Who could be interested in
• Why HP solutions
• Business process: Finance + Legal advisors
• IT Solution
• Business models
• What is next?

4. Introduction:
Real Estate portfolios today
• Banks with excessive risk exposure on national and international RE
investments, and related liabilities.
• High risk of default credit.
• Banks ith increasing bad d bt
B k with i i b d debts
• Banks balance sheets need to be cleared out.
• Necessity of profitability on RE investments while diversifying their
business model.
b d l
• ECB and local EU Governments need to stabilize and reactivate the EU
financial system

5. 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 bad
debt.
• When a credit is classified as bad debt banking authorities forces to provision the same amount
which could generate treasury tensions on any bank.
• To provide an alternative solution most EU government are improving the REIT conditions, while in
Spain the Central Government i setting up a new bill on creating REIT
S i th C t l G t is tti ti REIT.
• A Real Estate Investment Trust or REIT is a tax designation for a Corporation investing in Real
Estate that reduces or eliminates corporate income taxes. In return, REITs are required to distribute
90% of their income which may be taxable, into the hands of the investors The REIT structure was
income, taxable investors.
designed to provide a similar structure for investment in real estate as mutual funds provide for
investment in stocks.
• Like other corporations, REITs can be p
p publicly or p
y privately held. Public REITs may be listed on p
y y public
stock exchanges like shares of common stock in other firms.
• The legislation goal is to reactivate the financial markets by gaining on transparency.
• REITs have existed in the USA since the 1960s. They were later introduced in other countries, such as
y
the Netherlands, Australia, Canada, Japan, Belgium, Germany, France, sometimes in modified form.

6. US REIT Qualifications
In order to qualify for the advantages of being a pass-through
entity for U.S. corporate income tax, a REIT must:
• Be structured as corporation, trust, or association
United
• Be managed by a board of directors or trustees
• Have transferable shares or transferable certificates of interest States
• 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 95 percent of its income derived from dividends, interest, and property 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 in taxable REIT subsidiaries.

7. Spain REIT Qualifications
In order to qualify for the advantages of being a
p
pass-through entity for Spain corporate income tax, a
g y p p ,
REIT must:
European
• Minimum capital: €15m Union
• 18% taxable corporate profits
• 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 percent of its income derived from dividends, interest, and property 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.

8. REIT investment figures in the World
REIT = Real Estate Investment Trust
stocks market value by
From
F Number of REIT
N b f and date
dd t Specialization
S i li ti sector
t
AUS 100.000 M
Australia 1971 70 (2008) No data
Ley 8668/1993
Fundos de Investimento
Brazil
B il Imobiliário No data
N d t No data
N d t No data
N d t
United Industria/oficinas £2.400
Kingdom Retail £400
Finance Act 2006. GBP 21.800 Sanidad £400
(Efectiva en 2007) 21 (Sept. 2009) Mixtos £15.000
2007
Germany REIT- Aktiengesellschaft
SIIC - Société
d´investiment Immobiliare
Coté
l'article 11 de la loi de
finances n° 2002-1575 du €31,000
France 30 décembre 2002 46 (Dec 2008) sin datos
United Industry 92.000
States Retail 100.000
Residential 57.000
USD $539.000 Leisure resorts 11.000
1960 262 (Aug 2009) Logistics
g 14.000
Health 28.000
Other areas 13.000
mixed 206.000
Figures in milions of the respective currency
Source: HP from market data

9. 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
equity ratio.
it ti
• Provide an accountable market mark up on RE investment through contract
cash flow valuation
• Increase working capital l
ki i l levels assets
l
• Arises customers accountability through transparent operations regulation.

10. REIT Added value: entire flow coverage
Phases
Claims, underpayment, and their
RE insolvency communication and activities management
RE debt recovering Legal procedures and communications across
negotiation countries, auctions, portfolio monitoring.
Distribution channels support. Results oriented
RE sales solution.
RE l
lease out management. From expenses to
t t F t
RE lease out conditions and condominium groups.
RE Investment management. Wholesales
Investment
I t t
Funds
Investment management. Retail / Private
REIT banking
Investors

11. IT REIT Solution: Modules
Gestión
Leasing / Shareholders Consolidated
Proyectos BI
Contracts Management (1) Accountancy
Constructores
Dispute
management Investors/Taxes
Controlling
Management (1)
Legal / Statutory
Reporting
p g
Financial
Call Center RE
Accounting Treasury
Calls Maintenance
IAS / USGAAP
Mailing / Legal
g g
Mailing / Loans
Notarized docs
Tenant / Investor GL
Human Assets
Customers
Resources Management
Suppliers
• Based on Standard software:
Sales CRM
Sales forces / Payments SAP ERP 6.0
Management
Distribution channels SAP BI
• 50 supported languages