Thursday, July 7, 2011

REIT law may get frosty reception


By Miguel R. Camus, BusinessMirror

THE Philippine Real-Estate Investment Trusts (REIT) may get a frosty reception from potential issuers, with a new letter from the Philippine Stock Exchange (PSE) asserting its firm stand against the current rules that require REIT owners to give up control of the entity within three years.

A private-sector representative who helped iron out a compromise with the Department of Finance (DOF), which fears that REITs will cut tax revenues, said there is talk that they may return to negotiations with the government should the law fail to attract issuers after implementation.

The PSE letter, addressed to the Securities and Exchange Commission (SEC), comes ahead of the REIT tax regulations due for public release next month.

The tax regulations are also expected to contain another contentious provision relating to the value-added tax (VAT) on one-time property transfers.

The PSE letter focused on the so-called minimum public ownership (MPO) of REITs.

The current implementing rules require that REITs have a 40-percent public float upon listing, which should be raised to 67 percent in three years.

“Increasing it further to 67 percent within three years will render it practically impossible for REIT companies to maintain their listing status and accordingly, their entitlement incentives,” a portion of the bourse’s letter read.

“The PSE analysis suggests that the 67-percent level is not currently a market level that is acceptable,” it added.

The PSE said the initial levels required in the Philippines are already higher than other REIT frameworks in the region, based on a comparative study that includes Singapore, Malaysia, Hong Kong, Thailand, South Korea and Japan, as well as those in Australia, the US and the UK.

A listing is optional in some of these jurisdictions but when a listing applies, the highest minimum public ownership level is set at 35 percent in the UK, followed by 30 percent in South Korea.

None of the countries require the public float levels of REITs to be increased over a period of time.

“The imposition of a 67-percent [public float] requirement within three years from listing makes the [Philippine] REIT regime the most aggressive in the region thus far and hence, least conducive for investments and cross-border listings,” the PSE said.

The PSE said the SEC, which has the power to amend the provisions on the minimum public ownership, should consider the “interests of industry players, who play a crucial role in the successful launch of Philippine REITs.”

Should the SEC amend the rules, it would be the second time the corporate regulator would do so since the REIT Act lapsed into law at the end of 2009.

Sought for comment, SEC spokesman Gerard Lukban confirmed that the corporate regulator received the same letter from the bourse.

“Yes, we got the letter. It will be taken up by the commission,” Lukban said, without elaborating.

The current public float requirement is already the result of compromise talks between the private sector and the DOF.

The original rules approved by the SEC last year required an initial public float of only 33.3 percent, but the DOF balked at the provision, saying the amount was insufficient to allow the broader population to participate in the law.

Eduardo Francisco, cochairman of the Capital Market Development Council (CMDC), an organization that aided in finding a middle ground between issuers and the DOF for REITs, said the one solution moving forward is to “test the market” with the present rules.

“We are still hoping there will be REIT issuers. Should there be none, we can always bring it up to the CMDC,” Francisco said in a separate interview. “We can ask for reconsideration on the MPO and VAT.”

The CMDC is cochaired by Francisco alongside the heads of the SEC and DOF.

The final implementation of REITs will allow firms, such as real-estate developers, to make public certain property assets, like shopping malls and office buildings.

Firms can use fresh capital raised from these activities to expand their businesses while giving the public the opportunity to invest in mature real-estate assets that provide relatively steady returns.

Companies that have earlier expressed their interest to tap the law are Ayala Land Inc., SM Prime Holdings Inc. and Robinsons Land Corp.

1 Jul 2011

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