Regulator’s decision on real estate fund raises concerns in market
A decision by the Securities and Exchange Commission of Brazil (CVM) has raised concerns in players in the real estate investment funds (FIIs) industry. The position is linked to a specific case, of a fund managed by BTG Pactual. But if the view prevails, it has the potential to affect the entire market.The concern is that the new stance could have tax repercussions and affect the distribution of dividends, two major attractions for real estate funds in recent years. The question mark is whether the fund should continue to pay returns despite the reduction in the market value of its assets, as happened with real estate during the pandemic.It all started when CVM requested that BTG start distributing dividends to the shareholders of Maxi Renda fund only in case of accounting profit, a result that is affected, for example, by the valuation of real estate. In "brick" funds, this is done annually, based on an appraisal report. In "securities" funds, which holds mainly real estate receivable certificates (CRIs), inflation is one of the factors with a major impact.For the Superintendence of Supervision of Securitization (SSE), since 2014, the fund distributed income to its shareholders "in amounts substantially higher" than the profits. According to SSE, the income distributed by Maxi Renda increased the loss and reduced the net equity. Thus, distributions would not result from income or profits earned by the fund, but rather from the distribution of capital invested by the investors themselves.BTG appealed and argued that the calculation of FII results for accounting purposes (financial statements) would not have the same purpose and effects as the calculation of a company’s profits. Law 8,668, which created the model in 1993, requires that a minimum of 95% of the profits earned by the fund be distributed to shareholders. It also requires that the profit be determined on the so-called "cash system," which is based on earnings. Thus, for the administrator, expenses and revenues that went through the cash flow should be considered. BTG also cited a CVM letter from 2014, which intended to make clear that the accounting profit is only a starting point for the calculation of the so-called "net profit."At the top level of the regulator, the rapporteur of the case was director Fernando Galdi. He had a different view from the CVM letter cited by BTG. For him, any amount distributed above the cumulative accounting profit should be presented as...
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