Bourse resumes consultation on REIT

    Published : Saturday, May 26, 2012 00:00 [ manilatimes.net ]

    Written by : MADELAINE MIRAFLOR REPORTER

The Philippine Stock Exchange (PSE) has restarted discussions with industry and investment stakeholders to address the current issues on the Real Estate Investment Trust (REIT).

PSE organized a public forum, where Sen, Edgardo Angara, author of Republic Act No. 9856 or the REIT Law, as well as representatives from the industry and investment community participated, to discuss the various issues on the REIT and confirm the benefits of the investment trust to the country.

“Based on the feedback that we received during the forum, as well as the various queries from potential REIT investors, we gathered that there is still overwhelming interest in investing in REITs in the Philippines,” PSE President and Chief Executive Officer Hans Sicat said.

He said that if they get the REIT listings going, they estimated that the Philippines could generate at least $2.4 billion in new investments from the private sector.

“It is quite unfortunate, however, that all the potential issuers have decided to defer their REIT plans indefinitely,” Sicat added.

The REIT law was passed in 2009 and its implementing rules issued by the Securities and Exchange Commission (SEC) and the Bureau of Internal Revenue (BIR) last year.

The interest in participating in the REIT from any of the industry players have been dampened by the stringent rules related to the minimum public ownership, as well as the imposition of value added tax or VAT and the requirement of escrow.

“While we understand the need of the national government to protect its revenue streams, we believe that over the long term, the benefits of the REIT to the whole economy will far outweigh its perceived negative short term effects on the government’s revenues,” Sicat said.

He said that the PSE believes that given the improved ratios of the country, any perceived reduction in upfront revenues should not significantly impact on the objectives of the government at the fiscal front.

“We hope we can find a reasonable middle ground that addresses the concerns of both sides,” Sicat added.

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Rules dispute holding back REITs

Posted on February 07, 2012 11:00:39 PM [ BusinessWorld Online ]

BY DIANE CLAIRE J. JIAO, Reporter

THE ESTABLISHMENT of real estate investment trusts (REITs) in the Philippines remains uncertain as the Finance department insists on disputed requirements, but officials are optimistic a compromise will be reached as negotiations continue.

"The private sector is working with the DoF (Department of Finance) and the BIR (Bureau of Internal Revenue) to address concerns on REITs and arrive at a joint resolution," Capital Market Development Council (CMDC) Chairman Eduardo V. Francisco said on Monday.

The options up for consideration, he said, include the amendment of stringent tax rules governing REITs, the offer of more incentives and even changes to the REIT law.

Republic Act 98501, passed into law in 2009, allows for the formation of stock corporations that will pool investor funds and manage real estate assets. Hopes for its implementation rose last year after the BIR finally released related revenue regulations.

But property giants that had earlier expressed interest, such as SM Prime Holdings, Inc., Robinsons Land Corp. and Ayala Land, Inc. (ALI), balked given objections to the BIR’s REIT rules.

One of the unpopular provisions states that the initial transfer of real property into the REIT vehicle will be subject to the 12% value-added tax (VAT). The private sector wants an exemption, saying that levying the tax immediately places a cost on REITs before these even start making money.

Another pressing concern is the stringent minimum public float requirement. REIT companies must have a 40% minimum public ownership, to be increased to 67% within three years from its listing.

This put off many real estate firms that were unwilling to dilute ownership. The private sector has lobbied for the requirement to be brought down to just 33.33%.

More importantly, tax incentives earlier promised to REIT holders were tied to compliance with the minimum public float.

REIT firms will enjoy a 50% discount on their documentary stamp taxes, but they must set up an escrow equivalent to the other 50%.

REITs are also required to distribute at least 90% of their income to their shareholders, bringing down their income tax obligations. This benefit is again matched with an escrow, equivalent to the income tax due if dividends haven’t been taken out.

The escrows will only be released after three years, when the REIT complies with the 67% minimum public ownership requirement.

Finance Secretary Cesar V. Purisima last week said he was staying pat on the controversial float rules, stressing that REITs should encourage more people to invest in order to deepen the country’s capital markets.

"We should look at the substance of REITs, why it was conceptualized in the first place. It was meant to accelerate the recycling of capital by selling more of the shares of the company," he said in a chance interview.

"The private sector asked for tax incentives through REITs, and that’s fine with us, but we must get the benefit because we are paying the price. You want me to give up more taxes? For nothing?"

Mr. Purisima brushed aside the lack of private sector interest, saying: "If they don’t need REITs, what can I do? It’s their money."

Pamela Ann T. Perez, ALI investment manager, yesterday said critical elements in the REIT framework needed to be reviewed.

"The imposition of VAT on the transfer of the properties and the minimum public ownership requirement may be the most critical issues for the industry," she said in a text message.

Should any changes be made to sweeten the deal, Ms. Perez said ALI could reignite its interest in the alternative investment vehicle.

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SM group may reconsider REIT bid

    Published : Tuesday, January 24, 2012 00:00 [ manilatimes.net ]

    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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