SM group may reconsider REIT bid

    Published : Tuesday, January 24, 2012 00:00 [ ]
    Written by : Krista Angela M. Montealegre Reporter

The SM group may revisit its plan to issue a real estate investment trust (REIT) following the move of the Philippine Stock Exchange (PSE) to revive talks with the government on easing its provisions on taxation and the minimum public float requirement.

“We are open to reconsider the REIT. It’s good for our capital market both from viewpoint of local and foreign investors,” Jose Sio, SM Investments Corp. chief finance officer, said in a text message.

SM Prime Holdings Inc., the country’s biggest mall developer, had planned to raise $500-million from the offering, but it became the first casualty of the stringent rules that the Aquino administration had imposed to limit revenue lesions caused by laws that grant generous tax perks.

Robinsons Land Corp. had shelved its $300-million REIT plan, while Ayala Land Inc. had said it remained committed to pursue a REIT offering but the contentious issues should be addressed first.

Hans Sicat, PSE president and chief executive said that the bourse is moving to restart talks with the Department of Finance (DOF) and the Bureau on Internal Revenue (BIR) to “minimize” the current levels of the minimum public float and relax taxation rules.

“At the end of the day, there’s a huge market out there, not just a new asset class, but clearly a lot of capital is to flow into the country if we get it right. The analysis is that the structure we have put it, in terms of implementing rules, we have a structure that is not market friendly,” Sicat said.

Under the amended implementing rules of the REIT, the SEC requires issuers to offer at least 40 percent of their outstanding capital stock at the initial year. Most developers were amenable to this, but refused to give up control following the requirement to sell down 67 percent within three years from listing.

Under the revenue regulation endorsed by the –IR to the DOF, REITs would have to distribute at least 90 percent of their earnings to shareholders before they can enjoy tax incentives. The regulation also imposes value-added tax on a REIT’s gross sales from the disposal of real property or receipts from the rental of the same.

Sicat added that amending the REIT Law may be an “option” amid earlier statements of the BIR that revisions to the law can only happen if it is amended.

“That’s also a tough way to do it. Again, you could’ve handled it more easily with the IRR. It’s a unique situation here in the Philippines where we deal with things using a law and the law has been passed and it’s fairly straightforward,” he said.

The REIT Act lapsed into law in December 2009 but its implementation has been put on hold as fiscal authorities and corporate regulators took long in agreeing to the minimum public ownership of REITs and rules on tax incentives.

The DOF estimates foregone revenues of at least P10 billion in the first year of implementing the law.

REITs are companies that own and operate income-generating real estate assets, which include offices, apartment buildings, hotels, warehouses, shopping centers and highways.
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