Definitions Key to REIT Operation
- Adviser: Professional consultants to REIT.
- Affiliate: Corporation controlled, directly or indirectly, by another.
- Associate: Relatives within fourth degree or companies significantly owned by persons/relatives.
- Cash Equivalent Items: Highly liquid instruments considered equivalent to cash.
- Commission (SEC): Securities and Exchange Commission of the Philippines.
- Control: Power to direct financial and operating policies, presumed with >50% ownership.
- Deposited Property: Total value of REIT assets per latest valuation.
- Distributable Income: Adjusted net income excluding reinvested asset sale proceeds.
- Exchange: Registered stock exchange.
- Fund Manager: Independent manager responsible for asset allocation and property management.
- Income-generating Real Estate: Real property held to generate regular income.
- Independent Director: Director meeting specific independence criteria.
- Material Contract: Significant agreements affecting REIT operations or market.
- Net Asset Value (NAV), Net Income, Parent, Subsidiary, Related Party and other foundational concepts precisely defined.
Investment and Ownership Structure
- Investment only via subscriptions or purchase of REIT shares under approved REIT plans.
- Shares must be registered with SEC and listed on a regulated Exchange.
- REIT owning Philippine land must comply with foreign ownership limits.
Dividend Distribution and Public Shareholder Protection
- Mandated annual distribution of at least 90% of distributable income within five months after fiscal year-end.
- Dividends are payable only from unrestricted retained earnings.
- Public shareholders must receive dividend proportionate to their ownership share.
- Arrangements diminishing public shareholder dividend rights are void.
REIT Requirements and Operational Rules
- Minimum public ownership: REIT must have at least 1,000 public shareholders owning at least one-third of its outstanding capital stock.
- Minimum paid-up capital: Php300 million.
- Investment restrictions include predominance of income-generating real estate (75%), limits on foreign and synthetic investments, and leverage caps.
- Prohibited extensive property development except to hold upon completion; development limited to 10% of assets.
- Related party transactions require full disclosure, fair terms, independent approval, and fairness opinions for major deals.
- Annual independent valuation of assets required.
- Appointment of independent fund managers and property managers with specified qualifications and governance standards.
- At least one-third of directors must be independent.
- Fit and proper rules imposed to ensure quality and integrity of REIT managers and directors with disqualification from criminal or regulatory violations.
- Caps on executive compensation and fund/property manager fees established.
Reportorial and Disclosure Obligations
- Mandatory disclosure of material contracts, related party transactions, valuations, financial performance, changes in ownership and other material events.
- Quarterly and annual special reports detailing transactions, asset summaries, and performance comparisons.
- Full disclosure of risks in REIT plans/prospectuses.
- Penalties for non-compliance include administrative, civil, and criminal actions.
Taxation and Fiscal Incentives
- REITs taxed under normal corporate income tax laws but exempted from minimum corporate income tax.
- Dividend payments taxed at a final 10% rate with exemptions for domestic corporations and certain overseas Filipino investors.
- Income payments to REIT subject to a 1% creditable withholding tax.
- Transfer of real property to REITs subject to 50% of Documentary Stamp Tax and related fees, with conditions for incentive availment and penalty for non-compliance.
- Sale and transfer of investor securities have specific tax exemptions and treatments.
- REITs subject to VAT on gross sales and rental receipts of real properties; sales of securities are exempt from VAT.
- Tax incentives revoked upon delisting.
Penalties and Enforcement
- Registration revocation if REIT established without genuine intent.
- Serious penalties including fines between Php200,000 and Php5,000,000 or imprisonment from 6 to 21 years, or both, for financial misstatements, asset misappropriations, circumvention of ownership rules, and false certifications.
- Penalties extend to officers and corporations; foreign officers subject to deportation post-conviction.
Corporate Governance and Miscellaneous Provisions
- Fund and property managers subject to corporate governance principles.
- Half of registration fees retained by SEC to fund regulatory functions.
- Commission to issue implementing rules in coordination with BSP and DOF within 90 days; tax regulations issued by BIR.
- Separability clause to preserve other provisions if part invalidated.
- Repeal of inconsistent laws.
- Effectivity 15 days after publication in official gazettes or newspapers.