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  • 1. Closed-ended Real Estate Investment Fund – the best way to invest in Russia FOR DEVELOPERS, FOREIGN INVESTORS, LANDOWNERS Natalia Lazareva Chairman of the Board OJSC Asset Management Company NEOFITOUS 5, M.Palashevsky pereulok Moscow, 123104 tel.: +7 (495) 727-3570 fax: +7 (495) 540-36-71 info@neofitus.ru 18-the International Business Conference Russia and emerging markets: Ways to avoid global financial crises Limassol, Cyprus, July 2-6, 2008 Limassol, Cyprus, July 2-6, 2008
  • 2.
    • Are you interested in dynamic Russian Real Estate Market?
    • Do you want to start a construction project in Russia?
    • Are you a land owner in Russia?
    • Do you want to arrange joint business with Russian landowners?
    • Do you think about the diversification of your investments?
    • Then Russian Closed-ended Real Estate Investment Fund is an ultimate and best solution!
    Real Estate Investment Fund. Effective and convenient.
  • 3. Approaches of doing business in Russian real estate market
    • Purchase of real estate and following resale at better price
    • Acquisition of property and receipt income from lease payments
    • Land purchase, construction and development with following sale of complete real estate objects
    • Closed-ended Real Estate Investment Fund is the best solution to carry out all these types of business
  • 4. Foreign investors face numerous difficulties on Russian real estate market, working themselves
    • Negotiations with authorities, constructors and developers
    • Unclear legislation, numerous restrictions and long terms of decision making process
    • Complicated tax system
    • All these confused foreign investors and turn them a side from Russian market. Now due to the Closed-ended Investment Funds it is possible to deal with most of these difficulties.
  • 5. Main advantages of Closed-ended Investment Fund
    • A multi-level protection of rights and capital of investors, since the activity of Fund is strictly regulated and supervised by different entities.
    • The special taxation of Investment Funds. Fund is a pass-through entity, thus in accordance with Russian Tax Code it does not pay income and property tax at all.
    • Transparent and familiar vehicle for foreign investors . Russian Closed-ended Real Estate Investment Fund is a lot similar to USA REIT.
  • 6. Multi-level protection of rights and capital of investor
    • Activity of the Closed-ended Investment Fund is strictly regulated and supervised by the Russian Federal Financial Markets Service (analogue of Securities and Exchange Commission)
    • Activity of all Fund’s participants is carried out on the authority of the licences
    • Several obligatory bodies take part in Fund’s activity supervision, some of them on daily basis :
      • Inner controller of the Asset Management Company
      • Specialized depositary
      • Auditor
      • Registrar
    • Legally speaking participation in the Russian Real Estate Investment Fund is equal to actual real estate possession
    • Management, register and custody functions are divided between the Asset Management Company and Specialized depositary
    • Fund’s property is registered by the Asset Management Company on the special balance and individual record is carried out
    • The Fund does not respond by it’s property for debts of the Asset Management Company
  • 7. Russian Closed-ended REIF. Transparent and safe structure. Auditor Real Estate Properties General Meeting Management Company Real estate consultants Legal Advisory Real Estate Investment Fund Unit Holders General Meeting
    • Fund building
    • Property transactions
    • Property management
    • Risk management
    • Internal audit
    • Statutory reporting
    • Asset management
    • Regulator (FFMS)
    • Specialized depositary
    • Property rights record-keeping
    • Control over property
    • transactions
    • Specialized Registrar
    • Unitholder registrar
    • Accounting for unit transactions
    Independent Appraisers
  • 8. Special taxation of Closed-ended Real Estate Investment Fund
    • Closed-ended REIF does not pay income tax .
    • Closed-ended REIF does not pay property tax.
      • By the establishment of Russian Real Estate Investment Fund asset writes off the balance of the Trust Management founder. Unit (as a security) is given in return. The asset is no longer subject to the Property tax. Asset Management Company is not the property taxpaying agent , the Fund is not a taxpayer either in virtue of article 378 chapter 30 of the Tax Code of Russian Federation
    • Only redemption of units or unit income is liable for taxation .
      • Capital gain tax for non-resident is 30% for individuals and 20% for legal entities. But unitholders-residents of Double Taxation Convention countries are subject to tax payment only in their home countries. Thus they don’t pay capital gain tax in Russia. And if they use say Cyprus company as a unitholder they do not pay capital gain tax at all. Since in Cyprus there is a 0% taxation on securities business
  • 9. Familiar and understandable vehicle for foreign investors.
    • While USA REIT must have more than 100 unitholders, for Russian REIF the number is unlimited. Russian Investment Fund can be set up by any number of unitholders (including single one). This feature makes the Funds very helpful for private capital investments .
    • Russian Investment Fund can be established for one specific project .
    • There are no requirements for floating of Fund units on the stock market (although Fund units can be also traded both on the stock and over the counter market)
    • All strategic decisions on the Fund’s activity are made by the “Unitholders general meeting”.
    • The general management of the Investment Fund is being carried out by special legal entity – the Asset management Company , specially licensed for this activity by the Russian Federal Financial Markets Service
    Russian Closed-ended Real Estate Investment Fund is pretty understandable for foreign investors as it is a lot similar to USA REIT. However, there are some differences between them, which make Russian Investment Funds even more attractive. Some of them are:
  • 10. Asset Management Company. How to simplify foreign investment through Fund.
    • AM company has to have a highly qualified professional team. Each member of the team must obtain the license of the Federal Financial Markets Service to conduct this kind of activity. Thus there is no need for the investor to be deeply involved “in issue”, to obtain substantial experience in this investment field beforehand. He can easily receive any information about his investments as well as any investment or legal advisory any time he wants.
    • AM company on daily basis executes maintenance of real estate units and leads negotiations with constructors, leasers, state authorities and utilities. Thus there is no need for non-resident investor to use expensive third-party service or to hire representatives in Russia. Investor avoids extra costs and necessity to execute “household” actions. The management fee of AM Company as a rule is about 1% of the net asset value annually.
    • AM Company can form well-diversified portfolio of Russian Investment Fund. According to Russian legislation Real Estate Investment Fund can invest in following assets: - real estate units; - ground area; - real estate investment contracts; -shares of companies specializing in construction or other real estate operations.
    Closed-ended Real Estate Investment Fund under the management of Asset Management Company can simplify foreign investment procedure a lot.
  • 11. Approaches of participation in Closed-ended Real Estate Investment Fund
    • Joint Investment Fund as a secondary investor
    • Establish your own Fund for specific project you have or going to have in Russia
    • * The second way is for those investors ready to invest substantial amount (not less than 30 Million rubles)
    There are two ways of investing thought Closed-ended Real Estate Investment Funds under the management of Asset Management Company:
  • 12. Summary
    • One of the most profitable and safe investment fields in Russia is the real estate market
    • The only right financial vehicle for investing in Russian real estate is the Closed-ended Real Estate Investment Fund
  • 13. Example (construction Fund) Construction costs $ 30 Mio Object’s construction and sales horizon – 2 years Living floor space – 20 000 м 2 Commission for Fund management - 2 % of net asset value annually Spread : $ 1 3 200 0 00 ( 2 2 % of gross profit ) $ 4 500 за 1 м 2 $ 1 500 за 1 м 2 Building entirely $ 90 Mio Marketable value Total $ 30 Mio Project self-cost 58 800 000 45 600 000 Net profit , $ - 14 400 000 Profit tax (24%), $ 1 200 000 - Commission of the AMC (2% of net asset value, annually ), $ 60 000 000 60 0 00 000 Gross profit , $ 30 0 00 000 30 00 0 000 Gross expenditure , $ 90 000 000 90 000 000 Gross income , $ The Fund Companies Index
  • 14. Example (rent Fund) Gross income from lease of the building amounts to $ 5 Mio a year . Building self-cost is $ 25 Mio . The overall area 10 000 м 2 (8 000 м 2 – useful area which brings income from lease ). Expenses incidental to operation and running of the building amounts to $ 200 000 a year . Spread : $ 1 152 800 ( 24,02% of gross income ) $ 1500 per 1 м 2 $ 2500 per 1 м 2 $ 625 per 1 м 2 Building entirely $ 15 Mio Book value ( understated ) Building entirely $ 25 Mio Marketable value Total $ 5 Mio Net rent a year 4 550 000 3 397 200 Net profit , $ - 1 072 800 Profit tax (24%), $ - 330 000 Property income (2,2%), $ 4 550 000 4 800 000 Gross profit , $ 250 000 - Commission for Fund management (1% net asset value a year ), $ 200 000 200 000 Management expenses , $ 5 000 000 5 000 000 Gross income , $ Mutual Fund Companies Index
  • 15. Contact us +7 (495) 727-35-70, +7 (495) 235-52-51, +7 -800-200-52-51 Phone Elena Morozova Vladimir Kychinsky Lazareva Natalia NEOFITOUS Asset Management Company. Asset manager license № 21-000-1-00261, issued by the Federal Service for Financial Markets on March 07, 2006, for management of investment funds, mutual investment funds and non-state pension funds. Valid to March 7, 2011. Investment share value can both increase and decrease. High returns in the past do not guarantee future profits. Neither the asset management company, nor the State can guarantee from investment return. You should carefully learn Management Rules. 123104, Moscow , Maliy Palashevsky , 5 50 meters from Pushkinskaya metro station www . neofitus . ru [email_address] [email_address] Contact person [email_address] Chairman of the Board