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REIT becomes Limís legacy

By Den Somera
Philippine Daily Inquirer
First Posted 22:12:00 02/15/2010

Filed Under: Personalities, Stock Activity, Investments, Economy and Business and Finance, Venture capital

MANILA, Philippines--IF IT IS THE STORY OF HOW PSE president Francis Lim decided to leave his office is what you think he will be remembered by?as they usually are in the case of other past PSE presidents?think again.

He is the longest-yet-serving president the PSE ever had. More notably, he is responsible for the passage into law of some measures that will indeed contribute to the development of the capital market. The most significant is the recently signed Real Estate Investment Law or REIT.

The passage of the REIT is a veritable accomplishment. It places Francis Lim as one of the few PSE presidents who exactly understood their job: That of promoting the capital market into a more effective catalyst in mobilizing savings, in addition to making it a truly equally effective vehicle for the wider distribution of wealth among the people of the nation, real estate in particular.

The REIT is not his invention, but it was his deep appreciation of what it can do to further develop the market that makes it attributable to him. He had the imagination to see its potentials in making the capital market a far richer mine for investments.

Hong Kong, Japan and Singapore are among those countries that have made REIT as part of their most rewarding investment choices for the general investing public. It?s in the experiences of these countries where Francis Lim and staff drew inspiration to craft most of the features of our present REIT.

The REIT is one of the few two-way financial deals beneficial to both investors and issuers. Investors can truly make good return for their money while issuers are given the window of opportunity to engage in timely and financially rewarding real estate projects by being unburdened with the problem of sourcing new funds.

REIT projects

The ?REIT is defined as a stock corporation established principally for the purpose of owning income-generating real estate assets. Examples of income-generating assets include apartment buildings, office buildings, warehouses, medical facilities, resorts, hotels, shopping centers. REIT may also include infrastructure projects like highways, railroads, prisons, and other similar projects.?

The latter projects are exciting new investment choices. Compared to the usual real estate projects mentioned above, they are more hardy investments. They are less to react negatively on economic downturns.

Basic features
The REITs to be negotiable are first to be registered and listed in the stock exchange. To qualify, it must have a minimum paid-up capital of P300 million with at least 1,000 shareholders from the general investing public owning at least 50 shares each. Their total ownership must amount to no less than a third of the REIT?s outstanding capital stock.

A REIT may invest in an income-generating real estate located outside the Philippines. Such investment, however, must not exceed 40 percent of the REIT?s deposited property. And said investment has to have the approval of the Securities and Exchange Commission first to ascertain that the valuations of the subject assets are reasonable and fair in value based on acceptable and independent proof.

To assure that funds are not diverted from their envisioned purpose, at least 75 percent of the deposited property of the REIT must be invested in income-generating real estate. It must not be invested in any one security amounting to more than 15 percent of investible funds, except when they are invested in government securities. In this case, the limit is up to 25 percent.

Another feature that may safeguard the integrity of the REIT is that total borrowings and deferred payments of a REIT should not exceed 35 percent of its deposited property and up to 70 percent only if with investment grade rating.

In order to minimize investor risk, income-generating real estate assets are to be managed professionally by an independent REIT fund manager and property manager; fund manager and property manager fees shall not exceed one percent of the net asset value of the assets under management. Then, at least a third of the board of directors must be independent directors.

With all of the above mechanics, it is hoped that the REIT?s envisioned dividend equivalent to 90 percent of distributable income will add up to a big absolute amount.

Bottom line spin

The REIT is certainly one swan song that has made the presidency of Francis Lim in the PSE a little more memorable. It made his watch more meaningful than those of other presidents whose time just ended uneventfully due to lack of time or sheer tough luck. He was given a little more time and he certainly made use of it to come up with a good performance. Best wishes!

Rules of play

One Steven Uy once bugged my column to focus on his lament that ?there are people who deceive investors in the stock market, people who push stocks and drop them when they have the chance to get out, entice people to buy but they are the ones who are selling, using many brokers to cover [their] selling [schemes] ... [citing the names of companies]. And passionately ended with the appeal of ?help the readers ... not be deceive[d] by greedy people in the stock market.?

On the other hand, one Ryker Staten exclaimed the opposite when he said that, ?investors had already taken that [into] account ...? drawing from his repartee to my remarks on MRC to stress that the rules of play in the market is still that of ?let the buyer beware.?

Therefore, it?s always better for the Stevens of the market to always remember the saying that ?All?s fair in love and war,? and in the stock market.
You may reach the Market Rider at mailto: marketrider@inquirer.com.ph or directly at mailto: densomera@yahoo.com

Copyright 2015 Philippine Daily Inquirer. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.




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