What is the difference between a REIT (real estate investment trust) and a REIC (real estate investment company)?

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Gervais Alban Strickland
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1 Frequently Asked Questions What is the difference between a REIT (real estate investment trust) and a REIC (real estate investment company)? In Turkey, Real Estate Investment Companies are established in the form of joint-stock corporations and they have a legal personality. They don t have a trust status and are not managed by a board of trustees. Their capital is registered and they issue shares. Their shares have to be issued in return for cash and quoted, traded and priced at a stock exchange. Their main business lines may include: - Investing in high potential real estate; - Investing in real-estate backed securities; - Generating rental income from their portfolios; - Real estate sales. There is no lower share capital limit to get REIC status. The companies granted with the status have to apply to CMB in order to offer their shares to public within three months. While US REIT s should derive at least 75 percent of gross income as rents from real property or interest from mortgages on real property and distribute at least 90 percent of its taxable income to its shareholders annually, Turkish REIC s may derive their income from rents or property sales without any cap and dividend distribution is subject to each REIC s internal policy. What is the tax status of a REIC? As a Turkish joint stock company, a REIC is subject to Turkish income tax regulations. However, all profits of a REIC become exempt from Turkish corporate income tax under the Turkish Corporate Tax Law once it is recognized as REIC under Capital Markets Law and rules introduced by the Capital Markets Board and remain exempt as long as the REIC status is maintained. 1

2 Who is Torunlar REIC in a nutshell? Torunlar REIC is one of the leading listed REICs with a NAV of TL2.5bn. The Company is mainly focused on shopping mall developments as well as the development of mixed use projects. Torunlar s main strategy is to invest in urban centres where available supply is limited. Among operational assets appear Korupark and Zafer Plaza malls in Bursa, one of the most industrialized cities of Turkey and heart of Turkish automotive industry; Antalya Deepo Outlet in Antalya, the tourism center of Turkey; Ankamall located in the capital city Ankara and Torium Mall in Istanbul, the biggest city in Turkey housing over 18% of country's total population. It has implemented a "life center" concept in Korupark Shopping Mall and Residences development, in Torium Istanbul Shopping Mall (opened in October 2010), as well as in the design of Mall of Istanbul project which will be one of the largest shopping malls in Europe by GLA upon expected project completion in Its rental area is on course to grow from the current 215,000sqm to 396,000 by the end of Torunlar REIC is currently building Samsun Bulvar Mall, Mall of Istanbul, Torun Tower office block and Phase III of the Korupark Residences. Torunlar has already completed 50% of the presales for the Mall of Istanbul and 30% for Phase III of Korupark as of December 2011.It will start to construct the Mecidiyekoy ex-ali Sami Yen stadium project and Maltepe project in What is Torunlar REICs ownership structure?, Aziz Torun 37.41% Mehmet Torun 37.37% Free Float 25.16% Other 0.06% 2

3 When did Torunlar REIC go public? Torunlar REIC went public on 21 October Currently, the Company s free float is 25.16%. On which exchanges does Torunlar REIC trade? What is Torunlar REIC s ticker symbol? Torunlar REIC shares are traded on the İstanbul Stock Exchange National Market with the symbol TRGYO. Our Reuters Code is TRGYO.IS. Our Bloomberg Code is TRGYO:TI. What are the underlying principles of Torunlar REIC s strategy? To continue to focus on shopping malls while increasing retail-based mixed-use projects, To have an active and dynamic asset management of the malls, To monitor the developments in the real estate sector, To pursue the opportunities in the types of regions and real estate offering high growth and development potential, To have a crisis management and to convert them into opportunities, To play a pioneering role in the sector, to develop exemplary projects, To create spaces that make life easier by making use of technological developments in the real estate sector, To move forward the sector on the back of technology, To construct projects of the future by coalescing international consultancy and know-how with our local experience, To monitor closely value-creating opportunities in order to earn the highest return to our shareholders, To be the highest dividend distributing, reliable and most preferred REIC by solidifying its position among its peers. 3

4 What are Torunlar REIC s competitive advantages? - One of the leading real estate developers of Turkey - Well established performance track record of development and asset management - Excellent growth potential - Professional management team with long-term local experience and deal sourcing capability - Turkey has strong long-term economic fundamentals supporting real estate growth - Stable financial structure and flexible tax efficient REIC regime What is Torunlar REIC s fiscal year? Fiscal year of Torunlar REIC is the 12-month calendar year (January - December). Does Torunlar REIC have any foreign partners? No. Does Torunlar REIC have international operations? No. What is Torunlar REIC s paid-up capital? Torunlar REIC s paid-up capital is TRY This capital is divided into 224,000,000 (twohundredtwentyfourmillion) shares. There are three groups of share in Torunlar REIC consisting of Class A shares, Class B shares and Class C shares each with a nominal value of TRY 1,00. Each Class of shares is registered. 4

5 How often does Torunlar REIC report earnings? When does it release its financial results? Torunlar REIC releases its financials every three months in compliance with CMB rules. Please visit for more information. When is the Annual General Assembly of Torunlar REIC? What is Torunlar REIC s dividend policy? Torunlar REIC s dividend policy is determined within the framework of the provisions of Capital market Legislation and our Articles of Association. There are no privileges in dividend distribution between A, B and C type shareholders. The dividend policy and the annual dividend proposal containing the details stipulated in the Capital Markets Board Governance Principles are provided in the annual report and presented to the shareholders during the General Assembly Meeting. Our Company conducts a dividend policy within the framework of the provisions of the Turkish Commercial Code, Capital Markets Legislation, Tax Regulations and other relevant legislation as well as the provisions of our Articles of Association governing the distribution of profits. In determining the distribution of profit, the long-term strategy of our Company, the capital requirements of our Company, our investment and financing policies, profitability and cash position are taken into consideration. 5

6 On September 16, 2010, our board of directors resolved to propose to each annual shareholders meeting that 50% of our distributable profit be distributed in dividend, subject to our long-term investment plans and other funding requirements. Dividend is paid in TRY. How is dividend calculated? Net profit is calculated and distributed in accordance with our articles of association (after deducting all expenses, depreciation, taxes, similar payments, statutory reserves and previous year losses, if any, from the revenues determined at the end of the fiscal year as prescribed by the Turkish Commercial Code) in the following required order: - 5% of the net profit is allocated to a first legal reserve until the first legal reserve reaches 20% of our paid-in share capital; - a first dividend is paid to shareholders in the amount specified by the CMB; - the remainder of the net profit is set aside or distributed in full or in part to the shareholders as a second dividend or set aside as extraordinary reserves as determined by a resolution of the shareholders; and - after deducting an amount equal to 5% of the paid-in share capital from the portion to be distributed to the shareholders in dividend, 10% of the remaining amount is set aside as a second reserve. Unless the mandatory legal reserves are set aside and the first dividend set forth in the articles of association are distributed, no dividend can be distributed to the members of the board of directors, officers, employees or any charitable foundations, nor can any legal reserve be set aside or profit be transferred to the following year. Listed companies present their financial statements as per IFRS. However, according to the principle decision of the Capital Markets Board dated 05 May 2006 and no.21537, the upper limit in dividend distribution is the net distributable profit as per the statutory accounts rather than IFRS accounts, i.e. the excess of IFRS profit to statutory profit is not taken into account as the dividend base. 6

7 When am I entitled to dividend? Shareholders who own the shares at least one day before the ex-dividend date are entitled to a dividend. The ex-dividend date is decided at Ordinary General Assembly Meeting. When will the next dividend be paid? The amount and date for Dividend payment for 2011 will be decided in AGM. How is dividend taxed? Dividend distribution by a Turkish joint stock company is generally subject to a 15% withholding tax at source, except for resident corporate taxpayers and non-resident companies which hold the shares through a permanent establishment/representative in Turkey. However, since the profit of a REIC is subject to an internal withholding tax regardless of whether such profit is distributed or not, if dividend is paid from profits which are exempt from corporate income tax, no further dividend withholding tax is applied on such dividend under Corporate Tax Law, as opposed to the regular withholding tax regime applied to dividend distributed by a Turkish joint stock company. Resident shareholders-real persons: Half of the dividend received from a Turkish resident joint stock company is exempt from Turkish individual income taxation in accordance with Turkish Income Tax Law. Where the taxable dividend in a year exceeds a ceiling, which is set at TRY for 2010, an annual income tax return is required to be filed for all taxable dividend. Individual income tax rates vary from 15% to 35%, based on a progressive income tax tariff. Bonus shares issued by a Turkish joint stock company in connection with an increase of share capital by using profit retained by such company, are not considered earned dividend income and therefore they are not subject to filing requirements. Resident shareholders- Corporate taxpayers: Dividend received from another Turkish resident joint stock company is exempt from Turkish corporate income taxation in the hands of the recipient shareholder under Corporate Tax Law. However, dividend from a REIC is subject to regular rules governing the corporate income taxation of profit of a resident joint stock company. Non-resident shareholders: Withholding tax applied at source on income from movable capital invested into Turkey (i.e interest, dividend and alike) is normally a final Turkish tax for non- 7

8 residents. Turkish source income which has not been taxed as such is subject to taxation in Turkey through filing by non-residents. Where the shares of a Turkish joint stock company are held by a non-resident joint stock company, through a permanent establishment in Turkey, taxation of dividend paid by such Turkish company is subject to the same rules governing the taxation of Turkish resident joint stock companies. Does Torunlar REIC have a credit rating? Torunlar REIC currently does not have a credit rating. What is the composition of Torunlar REIC s Board of Directors? Torunlar REIC s Board of Directors is composed of 7 members, all of them are Turkish citizens and two of them are non-executive independent directors. The profiles of our Board of Directors can be found on our website under How can I find Torunlar REIC s Articles of Association? What is Torunlar REIC s standing vis-à-vis corporate governance principles? Financial markets have been gaining further depth in recent years, parallel to the increasing globalization trends. In order to secure an effective position in the growing financial markets, it is important to reach a consistent and profitable growth performance despite the challenging competitive landscape, create shareholder value, focus on the internationally accepted compliance practices and implement a set of respective principles. It is of extreme importance to closely monitor and implement the international standards in order for the Turkish capital 8

9 markets to become part of the global liquidity system and increase the funding opportunities from international financial markets. Torunlar REIC has adopted the Corporate Governance Principles enacted by the Capital Markets Board (CMB) on July 2003 with decision number 35/835, declared to public in July 2003 and revised in May Torunlar is aware that the application of these principles is to the benefit of our company, interest holders and finally to our country. We understand that the way to reach our company s vision, mission and our strategic targets necessitates the implementation of the Corporate Governance Principles. Principles of fairness, transparency, responsibility and accountability, which are the main principles of corporate governance, have been adopted by our company. We believe that good corporate governance brings considerable benefit to companies, especially in terms of raising management quality, reducing risks and increasing reliability and esteem in the financial and capital markets. Who are Torunlar REIC s independent auditors? Torunlar REIC s financial statements are audited by Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik AŞ, a member of PricewaterhouseCoopers. Within the framework of independent audit agreement executed between our Company and Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik AŞ, (PricewaterhouseCoopers) for year 2011, PWC conducts audits for consolidated financial statements. The independent audit report is submitted to Istanbul Stock Exchange (KAP) within the statutory period set for this purpose and published on the website and in the annual report of our Company. Who are Torunlar REIC s independent valuers? Torunlar REIC is subject to two kinds of property valuation. Standart Gayrımenkul Değerleme Uygulamaları AŞ appraises the properties in accordance with CMB valuation standards, while DTZ Pamir and Soyuer Gayrımenkul Danışmanlık AŞ, a member of DTZ Debenham Tie Leung Limited carries out its valuation in accordance with the RICS (Royal Institution of Chartered Surveyors) Appraisal and Valuation Standards. 9

10 Can you give information about Accounting Policy Changes in your 2010 YE Financial Results? Please see the 2010 year-end financial statements Note 2.1 and 2.2. How many people does Torunlar REIC employ? Torunlar REIC employs 80 people as of September 30, (The number corresponds to Torunlar REIC stand alone figure) Who can contact Torunlar REIC s shareholders regarding their questions? For shareholder questions, please send an to halukyukler@torunlargyo.com.tr or call Dr. Haluk Yukler, IR Director at

TORUNLAR REAL ESTATE INVESTMENT COMPANY Ordinary General Assembly Meeting dated Information Memorandum

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