Philippine REITs

The Development of REITs in the Philippines

• REIT Implementing Rules and Regulations (REIT Rules) approved by SEC in May 2010
• Listing Rules for REITs approved by the Philippine Stock Exchange (PSE) in June 2010
• The REIT revenue regulations of the Bureau of Internal Revenue (BIR) signed in July 2011
• Revised REIT Rules approved by SEC in January 2020
• Amended Listing Rules for REITs approved by PSE in February 2020
• Amended REIT revenue regulations of the BIR signed in January 2020
• REITs have been in Asia for over 18 years, with the Philippines lagging behind until the IRR revision
• Industry concerns on MPO and VAT issues resolved
• Positive economic outlook and strong real estate investment prospects in Manila
• Features of REITs include defined yield, direct participation in properties, and portfolio diversification
• REIT transaction flow involves the transfer of income-generating real estate assets to the REIT corporation
• Types of REITs by asset types include office, retail, leisure, logistic, healthcare, residential, and diversified REITs.

Key Requirements and Regulations for Real Estate Investment Trusts (REITs) in the Philippines

• REITs must annually distribute at least 90% of distributable income within five months of the fiscal year's close.
• A 3-year track record is required for the REIT-entity or its owned assets, indicating a history of at least 3 years of rental income.
• The maximum debt limit for a REIT is 35% of its deposited property, or 70% if the REIT has an investment grade rating.
• The appointment of independent parties is essential, including a fund manager and property manager, each with specific roles and limitations on fees.
• The fund manager oversees investment strategies, property acquisition, and financial reporting, with fees not exceeding 1% of the Net Asset Value.
• Requirements for the fund manager include independence, competence, and a minimum paid-up capital of Fifty Million Pesos.
• The property manager is responsible for day-to-day real estate asset management, with fees not exceeding 1% of the Net Asset Value.
• Requirements for the property manager include independence, competence, and minimum qualifications for employees.
• A property valuer is required for annual valuation of REIT assets, with specific independence and competence requirements.
• Allowable investments for REITs include income-generating real estate, cash, government securities, and property development projects.
• A firm undertaking to reinvest in Philippine real estate or infrastructure projects is required for proceeds realized by the sponsor/promoter from the sale of REIT shares or income-generating real estate.
• The exchange must furnish the Commission with a copy of the Reinvestment Plan within three days of receipt.

Real Estate Investment Trust (REIT) Overview

• RL Commercial REIT, Inc. and VistaREIT are REIT companies sponsored by Robinsons Land Corp. (RLC) and Vista Land, respectively.
• Investment in a REIT is through subscription or purchase of shares, subject to SEC regulations and restrictions.
• Protection to investors includes rules on minimum public ownership, related party transactions, and oversight of independent directors.
• REITs are subject to stringent SEC and PSE disclosure rules, with sanctions for violations.
• Benefits to investors include participation in a new asset class, high dividend distribution, and equity interest in income-producing real estate.
• Benefits to sponsors/developers include access to capital, tax benefits, and marketing advantages.
• Key considerations for sponsors involve analyzing asset fundamentals, operational track record, control, valuation, and other restrictions.
• Assets that can be contributed into a REIT include real properties providing steady rental streams, such as retail malls, office buildings, and residential developments.
• Qualities of successful REITs include high-quality property assets, potential for growth, and timing in the market.
• Successful REITs require competent fund and property managers, with assets listed in the PSE and specific financial requirements.
• REITs must comply with SEC regulations, including a minimum public float, independent directors, and limitations on director compensation.
• Financial requirements for REITs include a minimum paid-up capital of Three Hundred Million Pesos (Php300,000,000) and PSE listing within 2 years of availment of incentives.