Real Estate Investment Trust (REIT) - Part 2 of 3


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SEC. 4. Investment in the REIT. – Investment in the REIT shall be by way of subscription to or purchase of shares of stock of the REIT.

No shares of stock of the REIT shall be offered for subscription or sale except in accordance with a REIT plan and other requirements and restrictions as may be prescribed by the Commission.

SEC. 5. Registration and Listing. – The shares of stock of the REIT must be registered with the Commission and listed in accordance with the rules of the Exchange.

SEC. 6. Nationality Requirement. – A REIT that owns land located in the Philippines must comply with foreign ownership limitations imposed under Philippine law.

SEC. 7. Dividend Distribution. – A REIT must distribute annually at least ninety percent (90%) of its distributable income as dividends to its shareholders not later than the last day of the fifth (5″) month following the close of the fiscal year of the REIT. Subject to the provisions of this Act, the dividends shall be payable only from out of the unrestricted retained earnings of the REIT as provided for under Section 43 of the Corporation Code of the Philippines. The percentage of dividends received by the public shareholders to the total dividends distributed by the REIT from out of its distributable income must not be less than such percentage of their aggregate ownership of the total outstanding shares of the REIT. Any structure, arrangement or provision which would have the effect of diminishing or circumventing in any form this entitlement to dividends shall be void and of no force and effect.

Distributable income excludes proceeds from the sale of the REIT’s assets that are re-invested by the REIT within one (1) year from the date of the sale.

SEC. 8. Requirements. – Unless the Commission provides otherwise and after public hearing, taking into account public interest, the need to protect investors and develop the country’s real estate investment industry to make it globally competitive, the following requirements shall apply:

8.1 Minimum Public Ownership – A REIT must be a public company and to be considered as such, a REIT, must: (a) maintain its status as a listed company; and (b) upon and after listing, have at least one thousand (1,000) public shareholders each owning at least fifty (50) shares of any class of shares who in the aggregate own at least one-third (1/3) of the outstanding capital stock of the REIT.

The Commission shall prescribe a recording and monitoring system that will effectively ensure that the shares of the public shareholders are traceable to their names and for their own benefit and not for the benefit of any of the non-public shareholders mentioned above.

Compliance With the minimum public ownership requirement under this section must be duly certified by a responsible person designated by the Commission upon listing, as of record date for any dividend declaration or any corporate action requiring shareholder approval and other relevant times as may be required by the IRR of this Act.

8.2 Capitalization – A REIT must have a minimum paid- up capital of Three hundred million pesos (Php300,000.000.00).

8.3 Allowable Investments – A REIT may only invest in:

i. Real estate, whether freehold or leasehold, located In the Philippines. A REIT may invest in income-generating real estate located outside of the Philippines: Provided, That such investment does not exceed forty percent (40%) of its deposited property and only upon special authority from the Commission. The Commission in issuing such authority shall consider, among others, satisfactory proof that the valuation of assets is fair and reasonable. An investment in real estate may be by way of direct ownership or a shareholding in an unlisted special purpose vehicle constituted to hold/own real estate;

ii. Real estate-related assets, wherever the issuers, assets, or securities are incorporated, located, issued, or traded;

iii. Managed funds, debt securities and listed shares issued by local or foreign non-property corporations;

iv. Government securities issued on behalf of the Philippine government or governments of other countries and securities issued by multilateral agencies;

v. Cash and cash equivalent items; and

vi. Such other similar investment outlets as the Commission may allow.

8.4 Investment in Synthetic Investment Products – A REIT may invest not more than five percent (5%) of its investible funds in synthetic investment products such as, but not limited to, credit default swaps, credit-linked notes, collateralized debt obligations, total return swaps, credit spread options, and credit default options, and only upon special authority from the appropriate regulatory authority.

8.5 Income-generating Real Estate – At least seventy-five percent (75%) of the deposited property of the REIT must be invested in, or consist of, income-generating real estate.

8.6 Property Development – A REIT must not undertake property development activities whether on its own, in a joint venture with others, or by investing in unlisted property development companies, unless it intends to hold the developed property upon completion. The total contract value of property development activities undertaken and investments in uncompleted property developments should not exceed ten percent (10%) of the deposited property of the REIT.

8.7 Single Entity Limit – Not more than fifteen percent (15%) of investible funds of the REIT may be invested· in any one issuer’s securities or anyone managed fund, except with respect to government securities where the limit is twenty-five percent (25%).

8.8 Foreign Assets – A REIT may invest in local or foreign, assets, subject to the terms of its articles of incorporation. Where an investment in a foreign real estate asset is made, the REIT should ensure that the investment complies with all the applicable laws and requirements in that foreign country such as, but not limited to, foreign ownership restrictions, if any, and requisites of having good and valid title to that real estate.

8.9 Joint Venture – When investing in real estate as a joint owner, the RElT should make such investment by acquiring shares or interests in an unlisted special purpose vehicle constituted to hold/own the real estate and the REIT should have freedom to dispose of such investment. The joint venture agreement, memorandum and articles of association or other constitutive documents of the special purpose vehicle should provide for a minimum percentage of distributable profits of the special purpose vehicle that will be distributed and grant the REIT veto rights over key operational issues of the special purpose vehicle.

8.10 Aggregate Leverage Limit – The total borrowings and deferred payments of a REIT should not exceed, thirty-five percent (35%) of its deposited property: Provided, however, That the total borrowings and deferred payments of a REIT that has a publicly disclosed investment grade credit rating by a duly accredited or internationally recognized rating agency may exceed thirty-five percent (35%) but not more than seventy percent (70%) of its deposited property.

8.11 Related Party Transactions – Any contract or amendment thereto, between the REIT and related parties, including contracts involving the acquisition or lease of assets and contracts for services, must comply with the following minimum requirements:

i. Full, fair, timely and accurate disclosures on the identity of the parties. their relationship with the REIT, and other important details of the transaction have been made to the Exchange and the Commission;

ii. Be on fair and reasonable terms, including the contract price;

iii. Approved by at least a majority of the entire membership of the board of directors, including the unanimous vote of all independent directors of the REIT;

iv. Accompanied by a fairness opinion by an independent appraiser done in accordance with the valuation methodology prescribed by the Commission, in the case of an acquisition or disposition of real estate assets and property or share swaps or similar transactions; and

v. Any other matter that may be materially relevant to a prospective investor in deciding whether or not to invest in the REIT.

8.12 Valuation – A full valuation of a REIT’s assets must be conducted by an independent appraisal company, duly accredited by the Commission, at least once a year In accordance with the applicable rules of asset valuation and valuation methodology’ as prescribed by the Commission.

8.13 Fund Manager – A REIT must appoint a fund manager that is independent from the REIT and its sponsor(s)/promoter(s) and shall be subject to the following minimum requirements:

i. It must be a corporation duly organized under the laws of the Republic of the Philippines or a foreign corporation engaged in the business of fund management with proven track record and duly licensed to do business in the Philippines by the appropriate regulatory agency;

ii. It must have a minimum paid-up capital stock or assigned capital of Ten million pesos (10,000,000.00), unless the Commission provides otherwise;

iii. Its office in the Philippines must have a meaningful role in its business activities and must perform accounting, compliance and investor relations services in the Philippines;

iv. It must comply with the requirements of the relevant law or appropriate regulatory authority on the number of independent directors;

v. It must comply with the corporate, governance requirements, including the fit and proper rule, prescribed by this Act and its IRR;

vi. It must adopt measures as may be prescribed by the IRR of this Act to avoid conflicts of interest in the discharge of its duties as fund manager for the REIT; and

vii. It must employ a resident chief executive officer and at least two (2) full-time professional employees who have a track record and experience in financial management as well as experience in the real estate industry.

8.14 REIT Property Manager – The. REIT must appoint a REIT property manager who shall be responsible for managing the real estate assets such as apartment buildings, office buildings, warehouses, hospital buildings, medical facilities, hotel buildings, resort facilities, manufacturing plants and other physical assets of the REIT. The contract between the REIT and the property manager must comply with the disclosure and other requirements prescribed for related party transactions.

The REIT property manager shall be independent from the REIT and its sponsor/promoter and possess the qualifications and be subject to such functions and responsibilities, restrictions and other requirements prescribed by the Commission.

The property manager must comply with the following minimum qualifications:

i. It must comply with the requirement of the SRC or the Commission on the number of independent directors;

ii. It must comply with the corporate governance requirements, including the fit and proper rule, prescribed by this Act and its IRR; and

iii. It must adopt measures as may be prescribed by the IRR of this Act to avoid conflicts of interest in the discharge of its duties as property manager for the REIT.

8.15 Independent Directors – At least one-third (1/3) of the board of directors of a REIT must be independent directors.

8.16 Fit and Proper Rule – To maintain the quality of management of the REIT and afford better protection to REIT investors, the Commission, or the concerned regulatory agency, shall prescribe or pass upon and review the qualifications and disqualifications of individuals elected or appointed as directors or officers of the REIT, REIT fund managers, REIT property managers, distributors and other REIT participants and disqualify those found unfit. The appropriate regulatory agency may disqualify, suspend or remove any director or officer who commits or omits an act which renders him unfit for the position.

In determining whether an individual is fit and proper to hold the position, regard shall be given to his integrity, experience, education, training, and competence: Provided, however, That the following persons shall in no case be allowed to serve or act in the capacity of officer, director or consultant of any REIT, REIT fund manager, or REIT property manager:

i. Any person convicted of any crime involving any security or financial product;

ii. Any person convicted of an offense involving fraud or embezzlement, theft, estafa or other fraudulent acts or transactions;

iii. Any person who, by reason of any misconduct, is enjoined by order, judgment, or decree by any court, quasi-judicial body or administrative agency of competent jurisdiction from acting as a director, officer, employee, consultant, or agent occupying any fiduciary position;

iv. Any person found by the appropriate regulatory agency to have violated, or aided, abetted, counseled, commanded, induced, or procured the violation of this Act, the Corporation Code, the General Banking Law, the Insurance Code, the SRC, or any related laws and any rules, regulations or orders thereunder;

v. Any person judicially declared to be insolvent, or incapacitated to contract; and

vi. Any person found guilty by a foreign court, regulatory authority or government agency of the, acts or violations similar to any of the acts or misconduct enumerated in the foregoing paragraphs.

A conviction in the first instance shall be considered sufficient ground for disqualification.

8.17 Executive Compensation - The total annual compensation of all executive officers of the REIT shall not exceed such percentage of the net income before regular corporate income tax of the REIT during the immediately preceding taxable year, as may be provided in the IRR of this Act and shall be governed by the provisions on related party transactions.

8.18 Fund Manager and Property Manager Fees – Fees received by the REIT fund manager and the REIT property manager from the REIT shall not exceed one percent (1%) of the net asset value of the assets under management.

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