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 are the aspects of REIC development in Turkey? A Real Estate Investment Company (REIC) is a capital market entity organized to invest in rights based on real estates. Among 35 countries in which the REIC legislation is in force, the USA is the country where REICs are the most widespread in the world. Dating back to 35 years, the current number of REICs exceeds 300 today. There are three types of REICs. The first one is established for a certain project; the second one is established in order to invest in certain areas for limited or unlimited time and the third one is 1
established for unlimited objectives and periods. The REICs established in Turkey are usually categorized in the third type. The REICs common in Europe and the Far East are investment companies that provide financing for the real estate industry. The market size of the real estate industry in the world is 25.4 trillion USD. The market size of the 3,870 publicly-listed REICs is 2.5 trillion USD. The share of the publicly-listed REICs is 5% within the size of the global stock exchanges which amounts to 64.1 trillion USD. While this ratio is 5.5% in the USA, 5% in France, 4.2% in Germany, 8.4% in Australia, 9.6% in Hong Kong, it is 3.6% in Turkey. The share of the Istanbul Stock Exchange ("Borsa Istanbul") market cap to the GDP is 36%. This ratio is 71% in the world, 103% in the USA, 91% in Korea, 56% in Japan, 50% in Brazil and 49% in China. Therefore, raising the economic output to 2 trillion USD in Turkey in 2023, along with increasing the market cap of the stock exchange to 1 trillion USD shall only be possible by converting the construction companies that generate a significant economic growth into REICs and listing them on the stock exchange. The REIC market in Turkey gained traction with the initial public offering of Emlak Konut ve Torunlar REIC in 2010. The initial public offering of Halk Real Estate Investment Company ( Halk REIC ) in February, 2013 was conducted by the sale of the shares of Halk Bank as the principal shareholder in its subsidiary company. The initial public offering of Halk REIC continues the relative weight of the public offerings in Real Estate Investment Companies ('REICs'). Servet REIC on 24.04.2013, Panora REIC on 23th May 2013, and Yeni Gimat REIC on 16.08.2013, went public. The book-building stage was reached in order to conduct the secondary public offering of Emlak Konut REIC in the first week of June 2013, but as the market conditions were not ripe, it was called off. While the final price per share was 2.50 TL at the secondary public offering of Emlak Konut REIC on 11th November 2013 intended to finance its new projects and landplot purchases, the size of the public offering was 3.25 billion TL and it was one of the biggest public offerings on the stock exchange. Company Par Value ('000 TL) Free-Float Ratio (%) IPO Receipts ('000 TL) IPO Price First Trading Date Number of Investors International Local Halk REIC 185,500 28 250,425 1.35 22.02.2013 7 18,616 Servet REIC 13,000 25 35,490 2.73 24.04.2013-443 Panora REIC 21,750 25 102,225 4.70 23.05.2013-5,210 2
In April 2014, 25% of Körfez REIC which is a subsidiary company of Kuwait Turkish Participation Bank went public and it raised 19 million TL from the IPO. Real Estate Investment Companies ( REIC ) were established in Turkey in 1995 for the first time. In 1997, pursuant to the regulations of the Capital Market Board ("CMB"), they went public and were listed on Borsa Istanbul. The REICs which are capital market organizations operating pursuant to CMB communiqués are required to file with the Board, after the amendment made on the regulations after January 1 st 2010, to offer minimum 25% of their shares to public maximum 3 months after their establishment date. In accordance with the legal regulation to which they are entitled to, REICs are corporate entities in which transparency and accountability principles are applicable. The fact that REICs are publicly-held companies brings along significant benefits both for the industry and the investors. The companies that operate within the industry strengthen their financing opportunities that will enable them to develop comprehensive real estate projects by going public. On the other hand, the investors indirectly participate in projects which they cannot develop with their individual savings by holding shares in REICs. Despite the short history of the REIC industry in our country, the taxation incentives provided by the government resulted in an inflow of considerable amount of institutional capital into the industry. This was significantly supported by the important place of real estates in the investment habits of Turkish people. The REICs represent the example company model with their accountable, reliable, transparent and controllable aspects and their institutional structure. It is an influential factor for new set-ups or converted REICs to enter into the sector as the real estate is an industry attracting increasing demand, and corporate capital is required in order to meet this demand, and REICs enable small investors to invest in real estates even for insignificant amounts. The CMB Serial No. III-48.1a The Communiqué on Amendment in the Communiqué of Principles Regarding Real Estate Investment Companies is published in the Official Gazette with No. 28891 and dated 23.01.2014. 3
With the new regulation, the principles regarding the infrastructural real estate investment companies are regulated again within the REIC Communiqué. The model of "real estate investment company" is regulated as an alternative financing instrument for financing projects requiring large amount of capital and in addition, an opportunity of sale to qualified investors is initiated within the said structure for the purpose of increasing the interest of foreign investors in this model. 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. Pursuant to Article 5/1-d-4 of the Corporate Tax Law ("CTL"), revenues of REICs are exempted from the corporate tax. The withholding tax rate imposed pursuant to the CTL 15/3 on such revenues which are exempted from the corporate tax is 0%. The purchase and sale agreements of REICs exclusively for real estate portfolios and their real estate off-plan presales contracts are exempted from stamp duty. The original copies of all other written and signed contracts (including lease contracts) which are not exempted shall be subject to stamp duty. There is no general charge exemption for REICs. Therefore, they are subject to title deed and cadastral charges in particular. Who is Torunlar REIC in a nutshell? With one of the largest portfolios in Turkey, Torunlar REIC has the title of being the second biggest REIC in terms of total market value among the REICs traded on Borsa Istanbul. As of 31.03.2014, out of its total consolidated assets with an amount of 6 billion TL, 70.7% consists of real estates and real estate projects and 44.7% of its real estate portfolio consists of malls. Its assets also include development projects with a high growth potential for various mixed use purposes such as housing, office and hotel as well as land plots on which projects can be developed. The major field on which Torunlar REIC focuses is the development and asset management of large scale to very large scale exclusive malls in urban regions such as Istanbul, Bursa, Antalya, Samsun and Ankara. As of 31.03.2014, the portfolio which consists of 13 real estates, 3 real estate 4
development projects and 4 affiliates, includes six malls in operation (Samsun Bulvar Shopping Mall was opened in July, 2012.) and a Gross Leasable Area ("GLA") of 230,815 m². The projects under development include the Mall of Istanbul project which is estimated to be the second biggest mall of Turkey with a total GLA of approximately 150,000 m² when completed and other office projects such as Torun Tower constructed in locations which are yet not saturated in terms of commercial real estates. The construction license for the project to be developed on the former Ali Sami Yen Stadium was issued on 03.08.2012 and the construction started in 2012. The title deed of the land plot of the former Pasabahce Tekel Spirit Factory with its tender approved by the High Commission of Privatization was issued on 19.09.2012 and it was included in the portfolio. A contract was signed with Kiptas (Istanbul Residence Development Plan Industry and Trade Inc.), a subsidiary owned by the Istanbul Metropolitan Municipality on 28.06.2013 to develop a project on the basis of asset swap on a land plot of 515,977 m² owned by Kiptas located in Eyup, Istanbul. What is Torunlar REIC s ownership structure? Aziz Torun 37.41% Mehmet Torun 37.37% Free Float 25.16% Other 0.06% When did Torunlar REIC go public? Torunlar REIC went public on 21 October 2010. 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. Where can I find the prospectus and circular for Torunlar REIC IPO? http://www.torunlarreic.com/prospectus_circular_ipo.php 5
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. 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). 6
Does Torunlar REIC have any foreign partners? No. What are the subsidiaries of Torunlar REIC? The Company has a subsidiary TRN Mall Investment and Management JSC (TRN) ; three joint ventures Torunlar Özyazıcı JV (Torunlar Özyazıcı), TTA Real Estate Investment Development and Management JSC (TTA) and Torunlar REIC Torun Construction Torunlar Food JV ; and two subsidiaries Yeni Gimat REIC (Yeni Gimat) and Netsel Tourism Investments JSC (Netsel). Does Torunlar REIC have international operations? No. What is Torunlar REIC s paid-in capital? The paid in capital of Torunlar REIC is 500,000,000 TL. This capital is divided into 500,000,000 (five hundred million) shares. Torunlar REIC s shares consist of three classes of shares with 100,235,000 Class A, 100,235,000 Class B and 299,530,000 Class C shares each with a nominal value of 1.00 TL. 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 http://www.torunlargyo.com.tr/en/calendar.php for more information. When is the Annual General Assembly of Torunlar REIC? http://www.torunlargyo.com.tr/en/genel_kurul.php#detay What is Torunlar REIC s dividend policy? 1. In line with the Turkish Commercial Code, Capital Markets Communiqué and Articles of Association and legislation hereby, in principle, it has been adopted to distribute dividend every year. 2. According to the aforementioned principles, the planned distributable dividend shall remain to be 50% of the distributable dividend. However, depending on the Company s investment plans, the current status of its investments, the need for financial funding for the investments and extraordinary or unexpected developments in the 7
economy, the distribution of the 50% of the distributable dividend may be postponed. 3. The dividend can be in the form of cash or bonus shares on condition that distributable dividend is added up to the capital. 4. If the General Assembly affirms to distribute dividend, then the dividend is distributed in accordance with the decision made in the meeting at the latest by the end of the year when the meeting was held. The time of dividend distribution is determined by the General Assembly provided that it falls within this timeframe. The distribution of dividend can be either in lump-sum or in instalments. 5. The resolution of the Board of Directors in regards to whether to distribute dividend or not is submitted to the General Assembly for approval. The necessary procedures are followed according to the decision made at the General Assembly. 6. The distributable dividend is calculated in accordance with the Turkish Commercial Code and Capital Markets Law and related legislation, the Corporate Tax Law and related legislation, the Articles of Association, and decisions adopted at the General Assembly. The dividend is distributed equally among all shares regardless of their issue and acquisition dates at the distribution date. 7. No privileges are attached in the distribution of dividend in our Company s Articles of Association. 8. The Articles of Association governs distribution of advance dividend and the shareholders can be distributed dividend advance in accordance with the Capital Markets legislation. 9. For matters that are not stipulated here, the communiqué for Dividend Distribution, which became effective after its publication in the Official Gazette on 23.01.2014 and No. 2889 is complied with. 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 set aside as general legal reserve until it reaches 20% of the paid in capital, 8
- Donations made during the year, if any, are added to the net distributable profit after the general legal reserve is deducted. - The primary dividend distributable to the non-preferential shareholders is calculated by taking into account the rate determined in the profit distribution policy based on the net distributable profit of period with donations added. This amount must be compared to the net distributable profit of the period according to statutory accounts. - As long as the total amount of the primary dividend can be covered by the net distributable profit of period indicated in the statutory accounts, a primary dividend is distributed based on the net distributable profit of period with donations added according to IFRS financial statements prepared pursuant to the CMB regulations. But if the General Assembly resolves to distribute a dividend more than the net distributable profit of period indicated in the statutory records, it must be resolved to use other sources which are indicated in the statutory records and can be used for dividend such as extraordinary legal reserves and profits of previous periods. The point requiring attention here is that the amount to be resolved to distribute can be covered by the profit of period remaining after previous year losses appearing in the statutory records of the company are deducted as well as by the total amount of the other sources which can be used for profit distribution. - Based on the provisions of the articles of association, dividends can be distributed with a resolution of the general assembly to preferential shareholders, members of the board of directors, employees and people other than shareholders, founders of the company and ordinary usufructuary shareholders. - A secondary dividend can be distributed to shareholders pursuant to the articles of association or with a general assembly resolution. - After 5% of the company's paid in/issued capital is deducted from the sum of all dividends distributable to shareholders and other individuals participating in the profit, one tenth of the remaining base shall be calculated and reserved as general legal reserve. - On the other hand, if it is resolved to distribute the whole of the net distributable profit of period, to be limited to solely that case, a secondary general legal reserve fund is appropriated with an amount of 1/11 of the amount calculated by deducting 5% of the paid in/issued capital from the 9
net distributable profit of period. If the dividend is distributed in bonus shares by adding to the capital, such general legal reserve fund is not required to be provisioned for. 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. If it is resolved to distribute a dividend more than the statutory profit, it must be resolved to use other sources in the statutory records and can be used for dividend such as extraordinary legal reserves and profits of previous periods in profit distribution. When am I entitled to dividend? The dividend distribution principles are stipulated in accordance with the communiqué for Dividend Distribution No II-19.1 published by the Capital Markets Boards on 23.01.2014. 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 dividend amount for 2013 was paid on 06.06.2014. 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. 10
Resident shareholders-real persons: One half of the dividend received from a Turkish resident joint stock company and if the total amount together with the other income from moveable and immoveable properties taxed by way of withholding if any, exceeds the declaration limit of 26,000 TL applicable for 2013, half of the dividend income shall be declared with an annual tax return. 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 Legal Entity Taxpayers: A dividend received from a REIC is subject to zero withholding tax. However, the recipient corporation is subject to corporate tax. Non-Resident Shareholders: In case of limited taxpayer real persons or legal entities, 0 withholding is performed by the REIC that distributes profits. The withholding tax is a final tax. It is not filed with. 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 http://www.torunlarreic.com/directors_auditors.php How can I find Torunlar REIC s Articles of Association? http://www.torunlarreic.com/articles_association.php 11
What is Torunlar REIC s standing vis-à-vis corporate governance principles? The Company's corporate governance policies are included in its annual report for 2013. Continuing its activities with its managers and employees chaired by its Chief Executive Officer, Torunlar REIC has established its Corporate Governance Principles for the purpose of achieving the Company's goals and at the same time protecting and improving the value created for the shareholders. The Board of Directors regularly reviews the Company's corporate governance principles and practices. Torunlar REIC Management is aware of the impacts of the Company's operations on third parties. With this awareness, it has adopted as its first principle to be sensitive to the requirements and interests of its customers, shareholders, employees, public servants, suppliers and in general all social stakeholders in its operations. The Board of Directors has established the "Business Code of Conduct" of the Company for the purpose of preventing the risks with respect to business ethics, guide the management, audit the healthy and uninterrupted operation of reporting mechanisms against non-ethical conduct and ensure continuous maintenance of the corporate culture which is based on integrity and accountability. The Board of Directors and all of the managers and employees have acknowledged the responsibility of avoiding any actual or potential situations which may create conflict of interests between their individual interests and the Company's interests and preventing such situations pursuant to the Torunlar REIC Business Code of Conduct. Torunlar REIC maintains its operations in compliance with the laws and regulations in force. None of its member of the Board of Directors, managers or employees shall act or behave illegally when fulfilling their work and daily assignments. 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 2013, PWC conducts audits for consolidated financial statements. The independent audit report is submitted to Public Disclosure Platform (KAP) within 12
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. Can you give information about Accounting Policy Changes in your 2013 YE Financial Results? Please see the 2013 year-end financial statements Note 2. How many people does Torunlar REIC employ? Torunlar REIC employs 138 people as of December 31, 2013. (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 e-mail to halukyukler@torunlargyo.com.tr or call Dr. Haluk Yukler, IR Director at +90-216-425 20 07. 13