1. Mechanisms for investment in Brazilian Real Estate Luciano Garcia Rossi September 2009

2. 2 1.Direct Investment in Brazilian Properties 2.Equity Investments 3.Real Estate Funds (FIIs) 4.Private Equity Funds (FIPs) Summary

3. 3 1. Direct Investment in Brazilian Properties

4. 4 Urban Properties Restrictions for Acquisition  Fee farm system - Seafront properties, few municipalities  Zoning restrictions Taxation  IPTU calculated based on the assessed value (city tax) Foreign Investor (Corporate or Individual)  Income from Real Estate: 15% withholding tax (WHT)  Capital gains: 15% (WHT); 25% for tax haven investors

5. 5 Rural Properties Restrictions for Acquisition  Direct Acquisition – Law 5,709/71  Does not apply to Brazilian companies after 1988  Free up to 3 modules  INCRA authorization - from 3 to 50 modules  Foreigners cannot own more than 25% of the area of a municipality (up to 40% under one nationality)  Strict interpretation in the Amazon region  Border areas – 150km from international borders – Law 6,634/79  Need of authorization from Brazilian Defence Council (CDN)  Companies – majority of capital held by Brazilians  Violation – null and void + penalty of 20% the transaction

6. 6 Rural Properties Other Limitations for Acquisition  Mining Rights  Environmental constraints – legal reserve  Indian reservations  Former slave communities (quilombolas) Georeferencing  Any properties from 500ha (all properties after Nov. 2011)  GPS measurement + neighbours acceptance + INCRA certification Taxation  ITR calculated based on declared value (federal tax)

7. 7 Restricted Areas  Environmental Reserves  Indigenous Reserves  Border Zone

8. 8 2. Equity Investments

9. 9 Type of Company:  Brazilian corporation - S.A.  Limited liability company – Ltda. Setting up:  Board of Trade, CNPJ, Election of Managers  Time for incorporating a company: 30/60 days Taxation (foreign investors)  Dividends – tax exempt  Interest on Shareholders’ Equity - 15% WHT; 25% (tax haven)  Capital Gains - 15% WHT; 25% (tax haven)  IOF tax – 0.38% inbound and outbound Equity Investments – SPE (Law 4131)

10. 10 Stock Exchange:  More than 30 real estate companies listed in Bovespa (28 in Novo Mercado)  Largest players: CYRELA (CYRE3) MRV (MRVE3) GAFISA (GFSA3) BR MALLS (BRML3)  IMOB index (12 companies) - total value of US$17.3 Billion in July 2009 Taxation (foreign investors) - transactions in the market  Dividends – tax exempt  Interest on Shareholders’ Equity - 15% WHT; 25% (tax haven)  Capital Gains - tax exempt; 15% WHT for tax havens  IOF tax – not applicable Equity Investments – Stock Exchange (R 2689)

11. 11 3. Real Estate Investment Funds (FIIs)

12. 12 FII Offerings FIIs created in 1993: Law 8668 Regulated by CVM Ruling 472 / 2008 Tax benefits for Brazilian individuals only Source: CVM

13. 13 Legal Basis:  Law 8,668/93, as amended  CVM Ruling 472/2008 Concept: Investment fund designed to invest in real estate projects – Mechanism similar to US REITs Main Characteristics:  No corporate identity  Closed-end fund: redemption of quotas not permitted  Determinate or indeterminate term  No minimum investment amount FII – Basic Features

14. 14 Permitted Investments  Real estate properties and rights  Equity of real estate companies  SPEs with real estate business  Other funds (FIPs, FIIs, FIDCs)  Real estate receivables certificates (CRIs) and other instruments  Possibility of funds for QIBs – waiver of requirements (e.g., prospectus)  New flexibility on approval of acts (change in bylaws, new quotas)  Appraisal reports – approved by quotaholders - not necessarily market value  Law 12,024 - shall stimulate acquisition of CRIs and other instruments FII Investments

15. 15  FII earnings derived from real estate business are not subject to income tax.  Earnings derived from fixed or variable yield investments - WHT according to the same rules applying to financial investments by legal entities. May be offset against any WHT by the FII on distributing profits to quotaholders  FII shall pay out to quotaholders at least 95% of profits reported, as determined on a cash basis, every 6 months (June 30 and December 31)  Any FII that has a quotaholder (and related parties) as developer, builder or partner having over 25% of the quotas – tax assessed as a legal entity Foreign Investor (individual or legal entity)  Quota earnings: 15% WHT; 20% for tax haven  Capital Gains: 15% income tax; 20% for tax haven FII Tax Assessment

16. 16 4. Private Equity Funds (FIP)

17. 17 Change in FIP Offerings FIPs created in July 2003 by way of CVM Ruling 391 In June 2006, FIP foreign investors were granted a tax benefit under Law 11,312 Source: CVM

18. 18 FIP – Basic Features Basic Rule: CVM Ruling 391/03 Concept: Investment fund in (1) securities representing equity, (2) with participation in the management of the invested company Main Characteristics:  No corporate identity  Closed-end fund: quota redemption is not permitted  Determinate term  Qualified Investors + Minimum Investment of R$100,000

19. 19 FIP Investments Investments in securities representing equity  Investments Permitted: (a) shares (b) debentures (c) subscription bonds (d) other securities that can be converted in or exchanged for shares  All securities above may be issued by either publicly-held or closely- held companies.  Investment in fixed-yield funds for routine FIP expenses  Effective influence on the invested company

20. 20 Taxes Assessed on FIP Quotaholders Foreign Investors – Individual or Legal Entity  Law 11,312/06: Tax benefit (0% WHT on FIP earnings paid to quotaholders) provided the quotaholder meets the following requirements:  only individuals or legal entities resident abroad  investment made via Resolution 2689  quotaholder or related party may not hold more than 40% of FIP quotas or earnings  FIP may not have more than 5% debt bonds in its portfolio (net assets)  FIP quotaholder may not be located in a tax haven  If the requirements above are not met, WHT will be due on earnings paid out by the FIP at the rate of 15%

21. 21 SPC 1SPC 2 Other investments Offshore Brazil Up to 40% of FIP FIP Structure – Feeder Funds Investors Investment Vehicle Investors Investment Vehicle FIP

22. 22 FIIFIP Manager Portfolio ManagerFinancial institutions Term Determinate or indeterminateDeterminate Minimum Investment No minimumMinimum of R$100,000 + QIBs only Object Real estate, equity of real estate business, debt instruments, other funds Equity or equity-related instruments of S.A.s + effective influence. Any type of business Taxation 15% WHT on quota earnings and on capital gains (20% for tax havens) Zero percent WHT on earnings if all conditions are met (otherwise 15%) Main focus Brazilian individuals (tax benefits) Foreign investors FII vs FIP

23. 23 Luciano Garcia Rossi Tel: (55 11) 3247-8673 Fax: (55 11) 3247-8600 E-mail: lrossi@pn.com.brlrossi@pn.com.br Pinheiro Neto Advogados Rua Hungria, 1100 01455-000 São Paulo – SP BRAZIL www.pinheironeto.com.br 9.689.275 Contact Information