The Securities and Exchange Commission is moving to ease restrictive public ownership requirements under the Real Estate Investments Trust (REIT) law, but this may not be enough to entice issuers to hold the country’s first REIT offering unless taxes are lowered.
SEC chair Teresita Herbosa said in an interview last week that the commission was keen on lowering the requirement for REIT issuers, typically property developers, to increase a REIT’s public float from 40 percent upon listing to 67 percent in three years.
She said the move followed a congressional hearing two weeks ago which sought to find out whether the SEC could ease the steep public ownership requirement.
“We will revisit this, we made a commitment to them,” Herbosa said, referring to the House committee on ways and means.
She said they were now looking at keeping the float requirement at just 40 percent “all throughout,” meaning developers would not have to give up control of the REIT. She said details would still be subject to a review by the SEC and may be completed before the end of 2014.
The REIT law, implemented three years ago, provides a framework for companies to establish and sell shares in public real-estate trusts for assets like shopping centers and office buildings that will pay regular dividends to shareholders.
“We also have to see if float is the only drawback, taxes could be a bigger issue,” Herbosa said.
Indeed, another contentious issue were the tax rules approved by the Bureau of Internal Revenue (BIR), mainly on the value-added tax levied on one time property transfers to REITs. This would mean greater costs for firms establishing REIT companies.
Revenue commissioner Kim Henares said over the weekend that they “were not” keen on easing the VAT on property transfers to REITs.
Earlier, builders like SM Prime Holdings Inc., Ayala Land Inc. and Robinsons Land Corp. said they were keen on pursuing REIT initial public offerings valued at a combined $1 billion but later changed their stance with the government’s steep requirements.
Eduardo Francisco, president of BDO Capital and Investment Corp., said the private sector was still keen on REITs despite the long delay but he noted that addressing costly taxes remained a key consideration.
“If the VAT is not removed then it still might not encourage companies to issue REITs,” Francisco said. Miguel R. Camus