SEC plans reforms to expand REIT market

The Securities and Exchange Commission (SEC) is proposing amendments to the rules governing real estate investment trusts (REIT) to widen capital market opportunities for both issuers and investors.

The Commission released for public comment on November 18 the proposed changes to SEC Memorandum Circular No. 1, Series of 2020, or the Revised Implementing Rules and Regulations of Republic Act 9856, the Real Estate Investment Trust Act of 2009.

The draft amendments aim to broaden the types of income-generating real estate assets allowed in a REIT’s portfolio, provide flexibility for sponsors in reinvesting proceeds from the REIT’s listing, and ease the minimum public ownership requirement.

“The proposed reforms will help ensure that the REIT framework remains robust and responsive to evolving market needs, thereby enabling the real estate sector to unlock more capital that will further support their growth and contribute more to the development of our economy,” SEC Chairperson Francis Lim said.

The proposal expands the definition of income-generating real estate assets by allowing a REIT to directly or indirectly own these assets through shareholdings in an unlisted special purpose vehicle wholly owned by the REIT and formed primarily to hold real estate.

The SEC is also proposing to include real properties with regular income streams or predictable cash inflows from leases or similar arrangements as income-generating assets.

These may include rental properties from transportation, information and communications technology, and energy infrastructure assets, along with parking lots, buildings, malls, warehouses or storage facilities, immovable fixtures, machinery, and structures, and real rights over properties such as usufruct, easements, and registered leases.

The expanded definition allows more companies to qualify as REITs, effectively widening the scope of real properties that may be included in their portfolios.

The draft circular also extends the reinvestment period for proceeds to two years from the previous one-year standard.

Reinvestment in the Philippines may include investments in equity, extending loans or purchasing debt instruments, or repaying loans or debt instruments tied to any real estate or infrastructure project, whether government or privately initiated.

The SEC is further easing compliance with the minimum public ownership requirement by allowing a temporary dip when additional shares are issued to a sponsor, promoter, or their affiliates in exchange for income-generating real estate or rights over immovable property, subject to specific conditions.

A temporary dip may be allowed when the transaction is approved by the commission and the exchange, when the REIT submits a plan and timetable to restore the MPO requirement, and when the REIT publicly discloses the temporary breach and remedial plan in its structured reports and on its website.

The SEC is accepting public comments on the proposed amendments until Dec. 3 through ipsd_msrd@sec.gov.ph, eavalencia@sec.gov.ph, or ggjarugay@sec.gov.ph.