Statement of the Board of Directors of Advance Terrafund REIT related to amendments in the Bulgarian legislation

Dear shareholders of Advance Terrafund REIT,

We would like to inform you of the latest amendments to the Ownership and Use of Agricultural Lands Act (OUALA), promulgated in the State Gazette, issue 38/7 May 2014 and issue 14/20 February 2015. As a result, an unsurmountable problem arises for Advance Terrafund REIT, stemming from the limitations set for the shareholders of the company by the provisions of Article 3, para. 7, items 1 and 2 of OUALA*, as well as by the provided in Art. 40a fines for persons who have violated those provisions.

The adopted amendments in OUALA are undoubtedly contrary to the Public Offering of Securities Act (POSA) and provide ruthless penalties for the most transparent part of the Bulgarian business – the public companies.

With the adopted changes in the law, Advance Terrafund REIT and each public company are required to control its shareholding structure.

The free transfer of shares of public companies, under POSA as well as under the European legislation, is an obligatory prerequisite for the existence of a capital market.

During its 10-year history Advance Terrafund REIT managed to meet the high expectations of the investors and the regulated market and became one of the most popular public companies of the Bulgarian Stock Exchange (BSE)-Sofia, which is testified by the presence of the company in all indices of the capital market in Bulgaria.

The transparency of our business was appreciated by more than 500,000 owners of land in the country who chose us as their partner in their deals with land properties and we invested over BGN 200 million.

Our partnership with over 1,000 farmers in 20 districts of the country helped them expand their farms, using land from Advance Terrafund REIT portfolio. In this way, we supported the development of their entrepreneurial potential, which is the basis of their prosperity.

We have implemented globally recognized best management practices in the agricultural relations; we have started land consolidation projects in over 20 villages, and now two of them have been completed. We have become a world recognized and sought partner, both for the investors and the experts in agriculture in Bulgaria and Europe.

The facts mentioned above explain the reaction of disapproval of the Bulgarian business in terms of the changes in OUALA.

Advance Terrafund REIT supports the letter, which was signed on 16.02.2015 by BSE-Sofia, Industrial Capital Association in Bulgaria, Confederation of Employers and Industrialists in Bulgaria, Bulgarian Association of Supplementary Pension Security Companies, Bulgarian Association of Licensed Investment Intermediaries, Bulgarian Special Investment Purpose Companies Association and the Bulgarian Association of Asset Management Companies, sent to all political institutions, parliamentary parties, the relevant ministers and chairmen of parliamentary committees, where strong arguments are made in favour of amending OUALA by allowing exceptions to the restrictions under Article 3, para. 7, items 1 and 2, which relate only to the public companies.

We firmly assure you that the Management of Advance Terrafund REIT will not allow the sale of company assets as well as payment of property sanctions. We have taken the necessary action to remedy the previous problem and make every effort to protect the interests of our shareholders.

Respectfully yours:

Board of Directors 

Advance Terrafund REIT

* Enclosure:

The limitations in the cited Article 3 of OUALA provide that:

Art. 3. (amend. SG. 28 of 1992, No. 45 of 1995, amend., SG. 98 of 1997, amend., SG. 24 of 2007; amend. and suppl., No. 38 of 2014)

(7) (New – SG. 38 of 2014) The following cannot acquire and hold ownership of agricultural land:

1. Companies, where the partners or shareholders are directly or indirectly companies, registered in jurisdictions with preferential tax regime;

2. Companies, where the partners or shareholders are foreigners other than the individuals under par. 4 and 5, or foreign legal entities, other than those under par. 4 and 6, and sole ownership companies, established by such natural or legal persons;

(4) (amend. - SG. 28 of 1992, amend., SG. 24 of 2007) Foreigners or foreign legal entities may acquire ownership of agricultural land under an international treaty, ratified by Art. 22, para. 2 of the Constitution of the Republic of Bulgaria, promulgated and entered into force, and foreigners – by inheritance under the law as well.

(5) (New. - SG. 24 of 2007) Nationals of the Member States of the European Union and the States-parties to the European Economic Area Agreement can acquire ownership of agricultural land under this law after the deadline, specified in the Treaty of Accession of Bulgaria to the European Union.

(6) (new. - SG. 24 of 2007) Legal entities from Member States of the European Union or by the States-parties to the European Economic Area Agreement may acquire ownership of agricultural land under para. 5.

Constitution of the Republic of Bulgaria

Art. 19.  (2) The State shall establish and guarantee equal legal conditions for economic activity to all citizens and legal entities by preventing any abuse of a monopoly status and unfair competition, and by protecting the consumer.

(3) All investments and economic activity by citizens and legal entities shall enjoy the protection of the law.

Art. 22. (1) Foreigners and foreign legal entities may acquire property over land under the conditions ensuing from Bulgaria's accession to the European Union, or by virtue of an international treaty that has been ratified, promulgated and entered into force for the Republic of Bulgaria, as well as through inheritance by operation of the law.

(2) The law ratifying the international treaty, referred to in para. 1 shall be adopted by a majority of two-thirds of all members of the Parliament.

According to the Law on amending and supplementing OUALA / SG issue 14 of 20.02.2015/, property sanctions under the new Art. 40a are as follows:

(1) Company under Article 3, para. 7, with title on agricultural lands, shall be sanctioned with BGN 100 for each decare of land owned.

(2) Company, sanctioned under Article 1, that after three months , still has  a title to the agricultural lands, shall be fined  three times higher.

(3) For each subsequent violation paragraph 2 shall apply.