Joint Circular Letter CVM/SSE/SNC No. 3/2024: Complementary Guidelines on the Distribution of Results of Real Estate Investment Funds

SECURITIES COMMISSION OF BRAZIL (CVM)
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Joint Circular Letter No. 3/2024/CVM/SSE/SNC
São Paulo and Rio de Janeiro, November 27, 2024.

To Administrators and Managers of Real Estate Investment Funds - FII

Subject: Complementary guidelines on the distribution of results of FII.

Dear Sir/Madam,

1. This Joint Circular Letter aims to guide administrators and managers of Real Estate Investment Funds (“FII”) regarding the system for calculating and distributing FII earnings, in light of the provisions of Article 10, sole paragraph, of Law No. 8.668/1993 (“Law” or “Law 8.668”) and the guidelines contained in Joint Circular Letters SIN/SNC Nos. 01/2014 and 01/2015, Joint Circular Letter SSE/SNC No. 01/2024, and the decision of the CVM Board No. 17/2022, of May 17, 2022, within the scope of Process CVM 19957.006102/2020-10.

2. In summary, these technical areas understand that it is possible to calculate and distribute FII earnings based exclusively on the cash basis (“Cash Profit”) or exclusively on the accrual basis (“Accounting Profit”), provided that, in both calculations, the minimum of 95% of the accumulated Cash Profit calculated is respected.

3. In this sense, the minimum value to be distributed in the current semester must be calculated based on 95% of the positive difference between the amount of accumulated Cash Profit until the end of the current semester and the amount already distributed until the end of the previous semester, both considered since the date of the first subscription of FII shares.

4. Any amounts distributed in excess of accounting profit, to meet the minimum required by the Law, will entail the disclosures and records governed by the aforementioned CVM Board decision referred to in paragraph 1 of this Joint Circular Letter, with emphasis on the following excerpt from the decision:

“Regarding the informational aspects, the Board, unanimously, considered it necessary to guide the fiduciary administrator to promote (...) improvements that ensure investors clarity regarding the fact that such portion of the Excess Cash Profit distribution (if any), calculated in accordance with Law No. 8.668/1993, was higher than accounting profit (...), through the disclosure of sub-accounts in the Shareholders’ Equity (SE) line related to accumulated profit/loss, segregating (i) the distribution of profit that corresponded to distributed accounting profit and (ii) the distribution of Excess Cash Profit (if any) distributed under the auspices of Law No. 8.668/1993, adding, in explanatory notes to the Fund’s financial statements, elucidative information regarding such values.”

5. In cases where the distribution of earnings is carried out exclusively based on Accounting Profit, these superintendencies consider that the FII administrator must evaluate, among unrealized results, i.e., those that did not pass through cash, those that may be reversed in the future and those that may compose the basis for distributing earnings. Thus, the aim is to avoid distributing values with the possibility of future reversal, including, but not limited to, results obtained based on “fair value measurement.”

6. Undistributed amounts belonging to Accounting Profit may be accounted for in a specific sub-account highlighted in shareholders’ equity.

7. Additionally, the administrator who opts for distributing earnings based on the accrual regime must recognize distributed and unrealized earnings as an advance of cash profit distribution to be realized, and the exclusion of such values from the distribution base must be performed when they materialize in cash, in order to avoid double distribution of the same earnings.

8. Thus, it is emphasized that, once one of the two aforementioned distribution methods (Cash Profit or Accounting Profit) is adopted, it cannot be altered, and the FII administrator must control the adopted system diligently and transparently in all subsequent periods of calculating results.

9. It is also considered appropriate that administrators publish a Market Notice, in the Fundos.Net system, indicating the method of distributing earnings adopted by the respective FII, whether based on Cash Profit or Accounting Profit, in accordance with the guidelines of the Joint Circular Letter.

10. These superintendencies also consider it relevant to disclose and maintain consistent and transparent controls and reports regarding:
    a) the amounts distributed in advance, in the case of opting for the accrual regime, ensuring their exclusion from the distribution base when they pass through cash; and b) the amounts distributed, based on cash profit, since the FII began operations, in order to allow proof of the minimum distribution of 95% of Cash Profit in the accumulated view, provided for in Law 8.668.

11. The superintendencies emphasize that, regardless of the method chosen, it must respect the minimum distribution of 95% of the cash profit calculated cumulatively since the beginning of the FII’s operations.

12. Finally, it is important to reinforce that this Joint Circular Letter does not modify the previously published guidelines, but only seeks to complement them.

Sincerely,

Bruno de Freitas Gomes
Superintendent of Securitization and Agribusiness - SSE Paulo Roberto Gonçalves Ferreira Superintendent of Accounting Standards and Audit - SNC

Document electronically signed by Bruno de Freitas Gomes Condeixa Rodrigues, Superintendent, on 11/27/2024, at 13:58, based on Article 6 of Decree No. 8.539, of October 8, 2015.

Document electronically signed by Paulo Roberto Gonçalves Ferreira, Superintendent, on 11/27/2024, at 15:23, based on Article 6 of Decree No. 8.539, of October 8, 2015.

The authenticity of the document can be verified on the website https://sei.cvm.gov.br/conferir_autenticidade, by providing the verification code 220310 and the CRC code 8FF41641.

This document's authenticity can be verified by accessing https://sei.cvm.gov.br/conferir_autenticidade, and typing the "Verification Code" 220310 and the "CRC Code" 8FF41641.

Reference: Process No. 19957.009383/2021-43 SEI Document No. 220310