SEC eyes expanding REIT market

The Securities and Exchange Commission (SEC) on Thursday said it is proposing key amendments to the rules governing real estate investment trusts (REITs) in a bid to expand opportunities in the capital market for issuers and investors. 

In a news release, the SEC said it released for public comment the proposed amendments to SEC Memorandum Circular 1, Series of 2020, or the Revised Implementing Rules and Regulations of Republic Act 9856 or the 2009 Real Estate Investment Trust Act on Nov. 18.

The draft amendments seek to broaden the list of income-generating real estate assets that may comprise a REIT’s portfolio, provide flexibility for the REIT sponsor in reinvesting proceeds from the listing of the REIT, and relax the minimum public ownership requirement, among others.  

“The proposed reforms will help ensure that the REIT framework remains robust and responsive to evolving market needs, thereby enabling the real estate sector to unlock more capital that will further support their growth and to contribute more to the development of our economy,” said SEC chairperson Francis Lim.

The SEC added that its proposed amendments also aim to expand the definition of income-generating real estate assets by allowing a REIT to directly or indirectly own income-generating real estate through shareholding in an unlisted special purpose vehicle (SPV) wholly owned by the REIT and duly constituted to primarily hold or own real estate.

It also proposed to include real properties with regular streams of income, or those with recurring and predictable cash inflows derived from lease and other similar arrangements involving such properties in the definition of income-generating real estate.

This may include rental properties from transportation, information and communications technology, and energy infrastructure assets; parking lots; buildings; malls; warehouses or storage facilities; immovable fixtures, machineries, facilities, and structures; and real rights over properties including but not limited to usufruct, easements, registered leases.

Accordingly, more companies may be classified as REITs under the amended rules – effectively expanding the scope of real properties that may comprise a REIT’s portfolio.

The SEC added that its draft circular extends the period for the utilization of reinvestment proceeds to two years from the previous standard of one year from the date of receipt of the proceeds. 

Reinvestment in the Philippines may take the form of investment in equity, the extension of loans or purchase of debt instruments, or the repayment of loans or debt instruments in relation to any real estate or infrastructure project in the Philippines, both government and privately initiated.

Furthermore, the SEC is relaxing the compliance with the minimum public ownership (MPO) requirement for REITs, allowing for a “temporary dip” in instances when there is an issuance of additional shares to its sponsor/promoter or the latter’s affiliates in exchange for income-generating real estate or real rights over immovable property, subject to certain conditions. 

A temporary dip in MPO may be allowed when the transaction has been duly approved by the SEC and the Philippine Stock Exchange (PSE); when it submits a plan and timetable to the SEC on how the MPO requirement will be restored; and when the REIT publicly discloses the temporary breach and the remedial plan in its structured reports and on its website.

The SEC said it is accepting comments for the proposed amendments until Dec. 3, 2025. — JMA, GMA Integrated News