Circular Letter CVM/SIN/SNC 01/14

CIRCULAR LETTER/CVM/SIN/SNC NO. 01/2014
Rio de Janeiro, May 2, 2014
Subject: Guidance to administrators regarding the distribution of results of Real Estate Investment Funds.

Dear Sirs,

1. This Circular Letter aims to guide administrators of Real Estate Investment Funds (“FII”) on the method for calculating “profits earned, determined according to the cash basis,” in accordance with Article 10, sole paragraph, of Law 8.668/93, for the purpose of calculating the amount to be distributed.

2. We understand that the distribution base provided for in Article 10, sole paragraph, of Law 8.668/93, is obtained by identifying revenues/expenses recognized accounting-wise in the assessment period that were actually received/paid in the same period. Thus, the administrator must start from the accounting result (profit or loss) determined by the accrual basis in a given period and adjust it for the effects of revenues/expenses accounted for but not yet received/paid in the same assessment period. Revenues/expenses accounted for in previous periods but received/paid subsequently must compose the distribution base of the period in which they are effectively received/paid.

4. Similarly, any revenue/expense received/paid in advance by the FII cannot compose the distribution base while such revenue/expense has not yet passed through the accounting result (profit/loss) determined according to the accrual basis.

5. We also note that, in some situations, administrators subtract from the accounting profit determined in the period an amount titled “contingency reserve” for the purpose of calculating the profit earned, determined according to the cash basis. We emphasize that this retention of profit is only possible if it does not compromise the amount of 95% of the distribution base determined in accordance with this circular letter.

6. Finally, we understand that the administrator who chooses to distribute results monthly to unitholders must observe that, at the end of the semester, at least 95% of the profits earned, determined based on cash, are distributed, for the purpose of complying with the provision in Article 10, sole paragraph, of Law 8.668/93. Furthermore, as provided in Article 12, item I, of Law 8.668/93, we remind that it is prohibited for the administrator to advance future income to unitholders.

Sincerely,

(Signed original by)
Francisco José Bastos Santos
Superintendent of Institutional Investor Relations

(Signed original by)
José Carlos Bezerra
Superintendent of Accounting Standards and Auditing