Spanish Real Estate Investment Trusts or REITs

(SOCIMI companies)

BASED ON DRAFT LAW

March 18, 2009

2

Contents

I. Introduction

II. Corporate law requirements

III. Investment, holding and income distribution requirements

IV. Special tax regime

V. Entry into force

VI. Other tax benefits

VII. Conclusions

VIII. About Garrigues & Taxand

3

I. Introduction

Draft legislation has been laid before the Spanish parliament on SOCIMI companies (the Spanish equivalent of REITs - Real Estate Investment Trusts) a new investment vehicle receiving a beneficial tax treatment:

aimed at strengthening the rental market in Spain, improving competitiveness in the Spanish securities markets and stimulating the real estate market.

which enables small and medium investors to invest in real estate with a diversified portfolio of assets, and obtain a minimum return immediately through an obligatory minimum annual dividend.

The following slides summarize the main characteristics of SOCIMIs as they appear in the draft law that is to govern these vehicles. This draft is currently under consideration by parliament which means that changes could be added.

4

II. Corporate law requirements

1. Primary corporate purpose

i) To acquire and develop urban real estate for rental purposes1.

ii) To hold shares in the capital stock of other SOCIMI (listed) companies, not necessarily resident in Spain2, which have a similar corporate purpose and receive an equivalent treatment regarding income distribution requirements.

iii) To hold registered shares in the capital stock of other (non-listed) companies, not necessarily resident in Spain, which have as their primary corporate purpose to acquire urban real estate to be rented out, receive an equivalent treatment regarding income distribution requirements, and cannot, however, hold investments in the capital stock of other companies. All of the capital stock of these companies must belong to SOCIMI companies or similar non-resident companies, such as those mentioned in subparagraph ii) above. These companies may also qualify for the special tax treatment.

2. Capital stock and company name

Minimum capital stock: €15 million.

Their name must include the name or acronym by which they are known in Spain; either “Sociedad Anónima Cotizada de Inversión en el Mercado Inmobiliario, Sociedad Anónima” or “SOCIMI, S.A.”.

3. They must be traded on a regulated market

SOCIMI companies’ shares, and the shares of the nonresident companies mentioned in subparagraph 1.ii) above, must have been traded on a regulated market in Spain or within the European economic area uninterruptedly for the whole of the tax period.

1 The real estate must be acquired for ownership or under finance leases, separate accounts must be kept for real estate development and leasing activities, and the amount of rent relating to each property must be disclosed.

2 The law states that the nonresident companies mentioned must be resident in territories with which there is an actual exchange of tax information, pursuant to Law 36/2006, on measures to prevent tax fraud.

5

III. Investment, holding and income distribution requirements

1. Investment requirements

At least 85 percent of their assets must be invested in real estate (at least three properties) none of which may account for more than 40 percent of their total assets, and/or the shares described in subparagraph II.1.) above3.

Real estate loaned to third parties under agreements meeting the requirements for finance lease agreements are not eligible for these purposes.

At least 85 percent of their revenues must be from (i) the rental of real estate; or (ii) dividends on shares in the capital stock of the other companies described in subparagraph II.1) above4.

2. Holding period for the investment

Acquisitions: rented out for three years (for this purpose one year on the market for rent would also be computed)

Own developments: seven years

Shares: three years

3. Borrowing

Borrowing cannot account for more than 60 percent of assets.

3. The cash or receivables obtained from the transfer of those real estate assets or shares will not be computed as assets for these purposes, provided that the reinvestment period mentioned in paragraph 2) below has not run.

4. The income generated on the transfer of those real estate assets or shares will not count for these purposes, where the holding period for real estate assets has been met.

6

III. Investment, holding and income distribution requirements (Cont.)

4. Obligatory distribution of income5

Income not generated from the transfer of real estate and shares, or generated from ancillary activities: at least 90 percent.

Income derived from the transfer of real estate and shares, where the holding periods have been met: at least 50 percent, and the rest must be invested in real estate or shares meeting the requirements described above, within three years following the transfer. At the end of this period, any income not invested must be distributed.

Income generated from holding shares, together with income subject to the standard rate: 100 percent.

5. The distribution must be resolved upon within six months following the end of every fiscal year, and paid for in the month following the resolution.

7

IV. Special tax regime

1. Application of the Special Tax Regime

The election to take the special tax regime must be adopted by the Shareholders’ Meeting, and notified to the tax authorities prior to the quarter before the end of the tax period in which the special tax treatment is intended to be applied, and the special treatment will take effect in that period and in subsequent periods, until notification is given to discontinue the special regime.

This regime is not compatible with certain special tax regimes (e.g. tax consolidation).

Certain disclosures must be included in the financial statements.

Certain rules apply where companies receiving other tax treatment elect to take this special tax regime (though there is no entry tax in the regime).

Certain circumstances give rise to a forfeiture of the special tax treatment and in these cases it cannot be taken again for at least five years from the last tax period in which the tax regime was applied.

2. Special tax regime applicable to the company for corporate income tax purposes

The tax base is determined under corporate income tax legislation.

The tax accrues on the last day of the company fiscal year.

8

Self-assessment of the tax

on the proportional part of the tax base for the tax period that the dividend resolved to be distributed bears to the income obtained in that year.

if the dividend is distributed out of reserves from a year in which this special regime applied, on the proportional part of the tax base that the dividend bears to the income obtained in that year.

Tax rate

18 percent

The standard corporate income tax rate applies, however, to:

Income from the transfer of real estate or shares, where:

- the holding requirement has not been met; or

- the transferee is a related party within the same group, on the terms of article 16 of the corporate income tax law; or

- the transferee is resident in a territory where there is no actual exchange of tax information.

IV. Special tax regime (Cont.)

9

IV. Special tax regime (Cont.)

Rental income, where the tenant’s circumstances are any of those mentioned in the preceding paragraph (related party or resident in a territory with no exchange of information).

Adjustment to the tax rate

In any period in which the holding period for real estate is not met, 12 percent of the income generated on those assets, plus the relevant late-payment interest, must be paid over in all periods in which this special regime was taken. Any income generated from renting out the abovementioned assets in the period in which it failed to comply will be taxed at the standard rate.

The criteria provided for the standard treatment under corporate income tax legislation will apply to determine eligibility for credits and reductions, with the exception of the credit for reinvestment of extraordinary income.

Where the income generated on the transfer of real estate and shares is reinvested, however, 6 percent of the gain on the reinvested income may be deducted, pursuant to article 42 of the corporate income tax law, which is applied in the proportion referred to above.

10

IV. Special tax regime (Cont.)

3. Special tax treatment for shareholders

The dividends distributed to shareholders are not subject to withholding taxes or prepayments.

Shareholders who are corporate income tax payers, or nonresident income tax payers with a permanent establishment

Dividends

The amount to be included in the tax base of the shareholder will be the result of multiplying the dividend by a ratio of 100:82, and the gross tax payable will be reduced by 18 percent of the income included in the tax base6 (with certain restrictions).

The effective rate for the shareholder will be 12 percent, and therefore in combination with the SOCIMI, the income from dividends will be taxed at 30 percent.

Gains obtained on the transfer of shares

The credit under article 30.5. of the corporate income tax law may be taken, on the portion of the gain that relates to undistributed income in the period in which this special regime was not taken.

As regards the portion of the gain relating to undistributed income in the holding period for the shares, in the fiscal years in which this treatment was taken, the amount to be included in the tax base will be the result of multiplying that income by a ratio of 100:82, and the gross tax payable may be reduced by 18 percent of the amount included. The effective rate for the shareholder will therefore be 12 percent.

Any losses obtained will not be deductible if the shares were acquired from a related party, on the terms of article 16 of the corporate income tax law, to the extent of the exempt income obtained by that party at the time of the first transfer.

6 The standard treatment will be applied to the dividends on income from gains subject to the standard tax rate.

11

IV. Special tax regime (Cont.)

Shareholders who are individuals

Dividends

Exempt

Income obtained on share transfers

The capital gain or loss will be calculated following the Personal Income Tax Rules. If there was a gain, said gain will be tax exempt up to the difference between:

- the result of multiplying 10 percent of the acquisition cost by the number of years in the holding period for the shares in which the company took this special regime, and

- the amount of the exempt dividends obtained throughout the holding period.

The capital gain will not be exempt if it was acquired from a related party to the extent of the loss obtained by that company on the transfer.

Shareholders who are nonresident income tax payers without a permanent establishment

Dividends

Exempt if their country of residence meets the requirements for the exchange of tax information.

Income obtained on the transfer of shares

The same rules as for individuals apply, unless the person is resident in a country with which there is no exchange of tax information, in which case the exemption would not apply.

12

V. Entry into force

In view of the current stage of parliament’s procedure for approving the law governing SOCIMIs, approval may be expected in the second quarter of 2009.

According to the provisions in the draft law, it will enter into force on the day following its publication in the Spanish State Official Bulletin (BOE), and take effect in the tax periods commencing on or after January 1, 2009.

Therefore, in the case of companies with fiscal years that coincide with the calendar year, if the law is approved in 2009 it would be applicable in that very same year provided that the company reports its intention to apply the regime before September 30, 2009.

13

VI. Other tax benefits

Shares in SOCIMI companies are an eligible investment for the reinvestment obligations of shareholders who are legal entities, if the requirements for these purposes in article 42 of the corporate income tax law are met.

SOCIMI companies could take accelerated depreciation for investments made available to the taxpayer in 2009 and 2010, established in the additional provision of the Revised Corporate Income Tax Law added in the law that eliminates wealth tax, generalizes the monthly VAT refund system and adds other amendments to tax law.

14

VII. Conclusions

The purpose of the new legislation on SOCIMI companies, an instrument that already exists in neighboring countries, is to strengthen the real estate rental market.

A foreign REIT could enjoy the special tax regime if it invests in Spain through a corporate vehicle. This corporate vehicle does not need to be listed.

SOCIMI companies, whether newly created or arising out of a conversion of existing companies, can have a favorable tax treatment if they meet the following requirements:

Their primary activity must be to invest in real estate assets used for rental purposes.

They must be listed on an organized market.

Their capital stock must be at least 15 million euros.

They must distribute to their shareholders at least 90 percent of the income they obtain on their rental operations and 50 percent of their income from real estate sales.

15

VII. Conclusions (Cont.)

With regard to the favorable tax regime:

Spanish resident individuals and non-resident investors:

Dividends: the overall Spanish tax on real estate leasing income and capital gains on the transfer of the leased real estate obtained by SOCIMI is limited to 18% where the investors are non-residents or Spanish resident individuals, as no tax will be levied on dividend distributions to those investors.

Capital gains: exemption on the sale of shares in the SOCIMI company up to 10 percent of the acquisition cost multiplied by the number of years in the holding period for the shares in which the company took this special treatment minus a sum equal to exempt dividends.

Spanish corporate investors:

Dividends: the Spanish tax will be 30% in the case of corporate investors tax resident in Spain, as dividend distributions will be taxed at the corporate shareholder’s level at the regular rate, with a tax credit for the 18% tax paid by the SOCIMI.

Capital gains: tax treatment of gains obtained on the sale of SOCIMI shares is similar to dividends.

It does not apply to income derived from the rental, or sale, of real estate where the landlord, or transferee, is a related party within the same group, on the terms of article 16 of the corporate income tax law, or resident in a country with no exchange of information.

16

VII. Conclusions (Cont.)

Who is likely to benefit from the SOCIMI regime:

Spanish financing institutions which need to take care of the real estate portfolios acquired from their debtors through insolvency procedures.

Foreign REITs already active in Spain could try to apply the special tax regime by restructuring, if required, their current corporate structures.

Spanish real estate groups that would like to obtain an equity injection by going public.

17

VIII. About Garrigues & Taxand

Founded in 1941, Garrigues is the largest tax and legal services provider on the Iberian Peninsula, the largest tax advisory firm in Spain and the Spanish member firm of Taxand. With 86 tax partners, 590 tax practitioners and 25 offices across Spain, our firm is positioned number one in several rankings and specialises in providing expert advice in the areas of international tax, corporate tax advisory, tax planning and tax litigation.

Our experienced multidisciplinary staff and our international outlook enable us to offer clients an integral advisory service of the highest standard for all tax and legal matters, including transfer pricing, indirect taxation, local taxation, family business taxation, tax procedures, proceedings and disputes, and mergers and acquisitions.

Taxand is a global network of leading tax advisors from independent member firms in nearly 50 countries. Garrigues is our member firm in Spain. Our tax professionals—more than 300 tax partners and 2,000 tax advisors—grasp both the fine points of tax and the broader strategic implications, helping our clients mitigate risk, manage your tax burden and drive the performance of your business.

Taxand’s global real estate tax team brings together specialists who provide cross-border tax advice to make sure our clients’ investments and divestments in property achieve the best possible after-tax performance. Taxand is delighted to support this event covering the very latest developments in distressed real estate debt and equity.

Taxand advisors from around Europe - including participants from Taxand in Luxembourg, Atoz, Taxand in Cyprus, Eurofast Taxand and Taxand in Spain, Garrigues are attending this event to help real estate companies understand the steps they can take in today’s distressed climate to realise tax efficiencies.

For further information please contact our advisors at the event via our exhibition stand or post event, visit www.taxand.com/events/regionalevents