SEC eyes release of new REIT rules by September

THE Securities and Exchange Commission (SEC) targets to release the final guidelines for real estate investment trusts (REIT) by September, while remaining optimistic that the first such product will be launched within the year.

SEC Commissioner Ephyro Luis B. Amatong said they are now working on the draft framework for REITs which will be out for public comment this month.

“We hope to have the rules out for public comment within the month… most likely there’s a 15-day comment period. If it’s not too complicated, we can expedite it,” Mr. Amatong told reporters on the sidelines of Ayala Corp.’s Integrated Summit on Corporate Governance, Risk Management and Sustainability in Makati last Friday.

Salient provisions in the draft guidelines include the reduction of the minimum public ownership (MPO) to 33%, from the current requirement of 40% on the first year of listing raised to 67% on the second year.

This places the Philippines at par with the 20-33% MPO requirement seen for REITs in other Asian markets.

Mr. Amatong said reduction of the MPO comes with the condition that all proceeds from the REIT vehicle will be plowed back to the Philippines. “The amount equivalent to the REIT proceeds must be reinvested by the REIT sponsor, which is the developer… [They] should be reinvested in the Philippines within one year in either real estate or infrastructure,” he said.

The commissioner said corporate regulators are still working out the mechanics of this provision with the Department of Finance and the Bureau of Internal Revenue, including penalties should a REIT vehicle fail to comply.

“There’s a suggestion also that there’s a holding period of about four years after you’ve reinvested the proceeds. May mga comments pa ako dun, but once we are able to agree on the concept, then magagawa na namin ’yung regulation,” Mr. Amatong explained.

Republic Act No. 9856 was enacted back in 2009, yet no company has launched a REIT vehicle since due to the hefty MPO requirement, issues on independence of the REIT fund manager and the 12% tax on transfer of real properties once such assets are placed in a REIT.

Enactment in late 2017 of RA 10963, or the Tax Reform for Acceleration and Inclusion Act, has since resolved the taxation issues, while the SEC has taken steps to address the first two issues.

Ayala Land, Inc. (ALI) is set to become the first company to launch a REIT, composed of its premium office assets in the Makati Central Business District. ALI said the REIT company will be valued at about $500 million, about $300 million of which will be offered to the public.

“We’re still very confident that we’ll get one (REIT listing) within the year,” Mr. Amatong said, shrugging off the current weakness of the market as he cited apparent interest of investors to participate in the country’s first REIT listing. — Arra B. Francia