SEC may review minimum public ownership on REITs

MANILA, Philippines — The Securities and Exchange Commission (SEC) may review its minimum public ownership (MPO) requirement on real estate investment trust (REIT) companies, a local think tank said.

In a report, the National Tax Research Center (NTRC) said the Department of Finance (DOF) is confident the SEC may revisit its MPO requirement on REIT firms following the grant of value-added tax (VAT) exemption on the transfer of properties.

“With the support of the DOF, transfer of property...is now exempt from VAT pursuant to...the Tax Reform for Acceleration and Inclusion Law. With this welcome development, the DOF is confident the SEC will revisit its increased MPO requirement which will eventually lead to possible investors in the Philippine REIT market,” the NTRC said.

The SEC earlier said it would be amenable to review its MPO requirement should the DOF also review the VAT imposition on the initial transfer of properties to REIT companies.

These two factors were identified earlier as some of the major setbacks that discourage investors to enter the REIT market in the country and impede the implementation of the REIT Law.

Republic Act 9856 or the REIT Law was enacted in 2009 to allow more Filipinos to invest and participate in the ownership of income-generating real estate in the Philippines.

Under the original implementing rules and regulations of the law, a REIT must be a public company with at least 1,000 public shareholders each owning at least 50 shares of any class of shares, and who, in the aggregate, own at least one-third of the outstanding capital stock of the REIT.

However, the SEC revised the  IRR to increase the minimum ownership to 40 percent in the first year of the REIT and to 67 percent within three years from its listing.

According to the NTRC, the Philippine Stock Exchange (PSE) has continuously urged the SEC to review the rule as it is difficult to achieve.

“The PSE claims that the original MPO is already difficult to achieve and that the increased MPO requirement makes the Philippine REIT regulatory regime the ‘most aggressive in the region’ making it the ‘least conducive for investments and cross-border listings,’” the research agency said.

Upon its review of the REITs in the Asia Pacific region, the NTRC has confirmed the Philippines’ current MPO requirement is indeed the strictest in the region, and is even stricter compared to the United Kingdom and the United States.

The DOF, for its part, has continuously said the MPO requirement should be set back to the original provisions to open the market to possible investors that can further stir up the real estate and capital market.

“Still, the DOF is cognizant of the SEC’s concern of protecting the investing public through ensuring that public participation through wide public float is maintained,” the NTRC said.

Aside from the MPO requirement of REIT companies, the NTRC has also identified the escrow requirement on income tax collectible from a REIT company as one of the issues that affect the implementation of the REIT law.

The Bureau of Internal Revenue (BIR) requires REITs to submit proof of compliance to the increase in MPO prior to the declaration of any dividends or the deduction of said dividends from the income for tax purposes. Otherwise, the escrowed income tax will be released in favor of the government.