1. Shariah Compliant Real Estate Structuring

2. Contents 1. Fundamentals 2. Basic Assumptions 3. Use of Islamic Finance in Real Estate 4. Conventional Lender Concerns 5. Additional Assumptions 6. Various Structures a) Ijara b) Musharaka c) Murabaha d) Investment Sukuk 7. Variations: Cash Acquisition and Subsequent Financing (x2) 8. Considerations for Development of the Market 9. Additional Matters 1

3. Fundamentals Islamic (Shariah) Finance: Quranic (Shariah Law) principles; Riba (“interest/unjustified rewards/unlawful gain”); Gharrar (“uncertainty, risk, speculation”); Halal (“religiously permissible”); Haram (“not religiously permissible”); 2

4. Basic Assumptions Underlying asset must be acceptable Different interpretations on what proportion of asset must not be “haraam” Proposed structure of transaction has to be acceptable No prohibited activities (proportionate approach) Need to account for regulatory requirements and comply with two sets of law (Shariah and law of country) 3

5. Products / Structures have to be: understandable tax effective useable and easy to administer competitively priced not “alien” to existing regulatory requirements 4

6. Use of Islamic Finance in Real Estate Fast Growing Activity – both commercial & residential Transactions in UK, USA, France, Germany, Scandinavia, Eastern Europe as well as in the Islamic world Most commonly used structures: Cash Purchase Ijara Lease Structure Mudaraba Musharaka Diminishing Musharaka Others – see variations later 5

7. Conventional Lender Concerns No direct contractual connection (privity) between Islamic equity providers and contractual financing vehicle Access to real and enforceable security Potential and Actual events of Default in Loan Agreement should have similar effect in Shariah compliant documents Effective Cross Default Provisions Mechanisms to deal with Shariah requirements of: Risk of insurance to stay with owner/landlord/lessor Risk of structural maintenance to stay with owner/landlord/lessor No rent after termination 6

8. Assumptions Acknowledge Shariah and Non-Shariah compliant sides Issues: Documentation Put and call options Managing contractor provisions Tax matters Stamp Duty/SDLT Income Tax Capital/Chargeable Gains Capital Allowances Other Direct and Indirect Taxes Country specific structural risks 7

9. Vendor Funding Company Charitable Trust Islamic Fund Project Company Occupational tenant End user lease Occupational tenant rent. $70k pa Purchase price comprising bank facility and premium paid by Project Company for grant of Ijara Lease Sale of Property from Vendor to Funding Company Balance of all monies remaining after payment of rent under Ijara Lease representing return on “equity” investment. $20k pa Rent payable under Ijara Lease (being equivalent to interest & amortisation payable under bank facility). $50k pa Ijara Lease Ijara Lease granted by Funding Company to Project Company for $400k premium paid by Project Company to Funding Company representing “equity” in transaction $1m Bank $600k Interest $50k pa 100% share ownership Ijara Structure 8

10. Occupational End User Leave Project co Vendor Charitable Entity Islamic Investors Occupational Tenant Bank 100% share ownership Declaration of Trust SUKUK (Discounted Bond Instrument) Joint Venture (MUSHARAKA) Agreement Security Senior Debt Property Transfer Fund Co Partner Co 100% share ownership Joint Venture Agreement Musharaka Structure 9

11. Property Development/Investment Ijara Sukuk Investment CompanyFinancial Product Developer Special Purpose Company Sukuk Investor Wakeel Service Supplier Admin and Registrar Service Agency Wakala Agreement Purchase Contract for Assets Ijara Muntahia Bitamlik contract (plus sale contract) [PROCEEDS] 10

12. Variations Cash acquisitions and subsequent financings (UK) Dual lease structure (SWITZERLAND) “credit bail immobiliser” (FRANCE) 11

13. Project Company Funding Company Seller Lease (Ijara) Sale Agreement Purchase Price Title Purchase Price 12 Cash Acquisition and Subsequent Financing (# 1)

14. Project Company Funding Company Bank Lease (Ijara) Financing Amount 13 Cash Acquisition and Subsequent Financing (# 2)

15. Considerations for Developing Market Awareness of Acceptable Structures Familiarity with developing and accepted documentation Awareness of Shariah Scholar Dialogue (FATWAS) Credit Process Issues for Lenders Generally 14

16. Additional Matters Zakat (specified amounts to be allocated from disposable income); Shariah Boards – competition, pragmatic approaches; Urf (custom); Darura (overriding necessity); Maslaha (general interest to justify); Hiyal (ruse) 15

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