SEC eases rules on REIT
The Securities and Exchange Commission (SEC) on Friday formally moved to remove deal-breaking provisions for Real Estate Investment Trusts (REIT) and unlock billions of pesos in new investments.
The REIT law and its implementing rules were passed a decade ago with much fanfare.
But fears during the previous administration over state revenue losses prompted the inclusion of stricter tax and public ownership provisions, turning off the REIT law’s most ardent supporters: real estate giants who at the time were ready to raise at least $1 billion through new listings.
The REIT Act, passed by Congress in 2009, would have allowed companies to spin off assets that earn recurring income such as shopping malls, hotels and even toll roads and list these on the Philippine Stock Exchange.
On Friday, the SEC took concrete steps to revive REITs as it sought public comments for a set of draft rules that resolved previously contentious provisions.
Among these, the provision on public ownership that would have required REIT owners to give up control of the company.
The previous rules required public shareholders to own at least 51 percent upon listing and then going up to 67 percent by the third year.
Under the new guidelines, the REIT must have a public float of at least 33 percent.
“With the proposed amendments, we hope to develop a viable REIT market that will unlock a deep source of funding for more infrastructure projects in the country along with a lucrative investment opportunity for Filipinos,” SEC chair Emilio B. Aquino said in a statement.
The Department of Finance under President Aquino also worried about tax breaks under the REIT law. Moreover, they feared that money raised from the capital markets would be reinvested outside the Philippines.
It slapped a hefty value added tax on property transfers to a REIT—a provision that has since been rolled back under the present administration.
To ensure domestic spending, the SEC in its draft rules said money raised from REIT assets could only be reinvested in real estate or infrastructure projects in the Philippines.
“The reinvestment shall be made within one year from the data of receipt of proceeds or money by the sponsor/promoter,” the SEC noted.
The SEC also relaxed the three-year track record requirement of a REIT fund manager by considering its experience in property management in the real estate industry or in the development of real estate industry.
REIT vehicles are typical in other jurisdictions. For companies, they provide a fresh avenue to raise funds for other investments. Investors are likewise allowed to tap a new asset class, broadening their menu of options.
