S. No. 2639 H. No. 6379; 106 OG No. 9,1145 (March 1, 2010); Manila Times; Standard Today, January 25, 2010
(a) "Adviser" means a lawyer, accountant, auditor, financial or business consultant, and such other persons rendering professional advisory services to the real estate investment trust.
(b) "Affiliate" means a corporation that directly or indirectly, through one or more intermediaries, is controlled by, or is under the common control of another corporation, which thereby becomes its parent corporation.
(c) "Associate" of a person includes:
- Any relative of such person within the fourth (4th) degree of consanguinity or affinity; and
- Any company in which he/she and his/her relative within the fourth (4th) degree of consanguinity or affinity, directly or indirectly, has an interest of twenty-five percent (25%) or more.
(d) "Cash Equivalent Items" means instruments or investments that are highly liquid and marketable and are considered good as cash as determined in accordance with the rules and regulations prescribed by the Commission.
(e) "Commission" or "SEC" means the Securities and Exchange Commission of the Philippines.
(f) "Constitutive Documents" means the articles of incorporation and bylaws of a REIT.
(g) "Control" exists in favor of a parent corporation when it has the power to direct or govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. Control is presumed to exist when the parent owns, directly or indirectly, through subsidianes, more than one-half (1/2) of the voting power of an enterprise, unless in exceptional circumstances, it can clearly be demonstrated that such ownership does not constitute control. Control also exists even when the parent owns one-half (1/2) or less of the voting power of an enterprise when there is power:
- Over more than one-half (1/2) of the voting rights by virtue of an agreement with investors;
- To direct or govern the financial and operating policies of the enterprise under a statute or an agreement;
- To appoint or remove the majority of the members of the board of directors or equivalent governing body; or
- To cast the majority votes at meetings of the board of directors of equivalent governing body.
(h) "Corporation Code" refers to Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines.
(i) "Deposited Property" means the total value of the REIT's assets based on the latest valuation determined in accordance with the rules and regulations promulgated by the Commission.
(j) "Distributable Income" means net income as adjusted for unrealized gains and losses/expenses and impairment losses and other items in accordance with internationally accepted accounting standards. Distributable income excludes proceeds from the sale of the REIT's assets that are re-invested in the REIT within one (1) year from the date of the sale.
(k) "Exchange" means any entity registered with the Commission as a stock exchange pursuant to the Securities Regulation Code.
(l) "Fund Manager" refers to the person responsible for the allocation of the deposited property to the allowable investment outlets and selection of income-generating real estate. It shall execute investment strategies for the REIT and oversee and coordinate all of the following activities: property acquisition; property management; leasing; operational and financial reporting (including operating budgets); appraisals; audits; market review; accounting and reporting procedures, as well as refinancing and asset disposition plans. For clarity, a fund manager is considered independent from the REIT and its sponsors/promoters under this Act if it is in compliance with the independence, corporate governance (including the fit and proper rule) and other requirements prescribed by this Act, its implementing rules and regulations and the Commission.
(m) "Income-generating Real Estate" means real property which is held for the purpose of generating a regular stream of income such as rentals, toll fees, user's fees and the like, as may be further defined and identified by the Commission. The Commission may promulgate rules to include real rights over real property, provided they generate interest or other regular payments to the REIT.
(n) "Independent Director" means a director who has the qualifications and none of the disqualifications of an independent director specified in the Securities Regulation Code and its implementing rules and regulations.
(o) "IRR" refers to the Implementing rules and regulations promulgated to implement the provisions of this Act.
(p) "Investible Funds" refer to funds of the REIT that can be placed in investment vehicles other than income-generating real estate such as real estate-related assets, managed funds, government securities, and cash and cash equivalents.
(q) "Investor" means the owner of investor securities or investor shares.
(r) "Investor Securities" or "Investor Shares" mean shares of stock issued by a REIT or derivatives thereof.
(s) "Managed Funds" mean any arrangement whereby funds are solicited from the investing public and pooled for the purpose of investing in securities duly registered with and/or approved by the appropriate regulatory agency of the government for investment by the REIT.
(t) "Material Contract" refers to an agreement or arrangement where the amount involved is at least five percent (5%) of the deposited property of the REIT or which is not entered into in the ordinary course of business of the REIT: Provided, however, That the following shall be deemed a material contract regardless of the amount:
- Related party transactions under Section 8.11 hereof;
- Contract between the REIT and fund manager;
- Agreement between the REIT and property manager;
- Agreements between and among shareholders such as voting trust agreements, pooling agreements, joint venture agreements or other shareholder agreements as may be determined by the Commission;
- Any acquisition or disposition of real estate by the REIT;
- Contracts relating to investments of the REIT under Section 8.3 hereof;
- Any contract creating mortgages, encumbrances, liens or rights on the real estate of the REIT;
- Contract of any nature that limits the declaration or distribution of dividends by the REIT;
- Any contract relating to joint venture, spin-off, consolidation or merger involving the REIT; and
- Any contract that may be expected to materially affect the market activity and/or the price of the investor securities issued by the REIT as may be determined by the Commission.
(u) "Net Asset Value" or "NAV" means the total assets less total liabilities as determined by the implementing rules and regulations (IRR) of the Commission.
(v) "Net Income" means net income as determined under the Philippine Financial Reporting Standards (PFRS).
(w) "Overseas Filipino Investor" refers to an individual citizen of the Philippines who is working abroad, including one who has retained or reacquired his Philippine citizenship under Republic Act No. 9225, otherwise known as the "Citizenship Retention and Re-acquisition Act of 2003".
(x) "Parent" means a corporation which has control over another corporation, directly or indirectly, through one or more intermediaries.
(y) "Principal Officer" means the chairman of the board of directors, president, chief executive officer, chief operating officer, treasurer, chief financial officer, corporate secretary, vice president, their equivalent positions, or such other officers occupying positions of significant influence in a company as may be determined by the Commission.
(z) "Principal Stockholder" means a stockholder who is directly or indirectly the beneficial owner of more than ten percent (10%) of any class of security of the REIT.
(aa) "Public Shareholder" means a shareholder of a REIT other than the following persons (non-public shareholders):
- The sponsor/promoter of the REIT;
- A director, principal officer or principal shareholder of the sponsor/promoter of the REIT;
- A director, principal officer or principal shareholder of the REIT;
- An associate of a director, principal officer or principal shareholder of the REIT or its sponsor/promoter;
- A related corporation to the REIT or its sponsor/ promoter; and
- Any person who holds legal title to the shares of stock of the REIT for the benefit of another for the purpose of circumventing the provisions of this Act.
(bb) "Property Manager" refers to a professional administrator of real properties who IS engaged by the REIT to provide property management services, lease management services, marketing services, project management services, including rent collection, tenant services, care of the physical plant, security, leasing, marketing of the property to outside prospects, and other similar services pertaining to the property under administration. For clarity, a property manager is considered independent from the REIT and its sponsor(s)/ promoter(s) under this Act if it is in compliance with the independence, corporate governance (including the fit and proper rule) and other requirements prescribed by this Act, its IRR and the Commission.
(cc) "Real Estate Investment Trust" or "REIT" is a stock corporation established in accordance with the Corporation Code of the Philippines and the rules and regulations promulgated by the Commission principally for the purpose of owning income-generating real estate assets. For purposes of clarity, a REIT, although designated as a "trust", does not have the same technical meaning as "trust" under existing laws and regulations but is used herein for the sole purpose of adopting the internationally accepted description of the company in accordance with global best practices.
(dd) "Real Property" shall have the same definition as "Immovable Property" under Article 415 of the Civil Code of the Philippines. Real estate, when used in this Act, shall have the same meaning as real property.
(ee) "REIT Plan" refers to the plan, including its amendments, of the REIT registered with the Commission.
(ff) "Real Estate-Related Assets" mean:
- Debt securities and listed shares issued by listed property companies; or
- Other funds and assets, including personal property, incidental to the ownership of real estate.
(gg) "Related Corporation" means the parent, subsidiary or affiliate of the REIT.
(hh) "Related Party" includes:
- The director, officer or principal stockholder of the REIT or associate of such persons;
- The sponsor/promoter of the REIT;
- The fund manager of the REIT;
- The adviser of the REIT;
- The property manager of the REIT;
- A director, principal shareholder or principal officer of the sponsor/promoter of the REIT, REIT's fund manager or property manager, or associate of any such persons; and
- Related corporation to the REIT.
(ii) "Securities Regulation Code" or "SRC" refers to the Securities Regulation Code of 2000 and its implementing rules and regulations.
(jj) "Sponsor/Promoter" means any person who, acting alone or in conjunction with one or more other persons, directly or indirectly, contributes cash or property in incorporating a REIT.
(kk) "Subsidiary" means a corporation more than fifty percent (50%) of the voting stock of which is owned or controlled, directly or indirectly, through one or more intermediaries, by another corporation, which thereby becomes its parent corporation.
(ll) "Synthetic Investment Products" are derivatives and other securities created exclusively out of one or more financial instruments to simulate the returns of the underlying financial instruments, such as credit-linked notes, collateralized debt obligations, total return swaps, credit spread options, credit default options, and similar products determined by the Commission.
(mm) "Taxable Net Income" means the pertinent items of gross income specified in Section 32 of the National Internal Revenue Code of 1997, as amended, less all allowable deductions enumerated in Section 34 of the National Internal Revenue Code of 1997, as amended, less the dividends distributed by a REIT out of its distributable income as of the end of the taxable year as: (a) dividends to owners of the common shares; and (b) dividends to owners of the preferred shares pursuant to their rights and limitations specified in the articles of incorporation of the REIT.
8.1 Minimum Public Ownership — A REIT must be a public company and to be considered as such, a REIT, must: (a) maintain its status as a listed company; and (b) upon and after listing, have at least one thousand (1,000) public shareholders each owning at least fifty (50) shares of any class of shares who in the aggregate own at least one-third (1/3) of the outstanding capital stock of the REIT.
The Commission shall prescribe a recording and monitoring system that will effectively ensure that the shares of the public shareholders are traceable to their names and for their own benefit and not for the benefit of any of the non-public shareholders mentioned above.
Compliance with the minimum puplic ownership requirement under this section must be duly certified by a responsible person designated by the Commission upon listing, as of record date for any dividend declaration or any corporate action requiring shareholder approval and other relevant times as may be required by the IRR of this Act.
8.2 Capitalization — A REIT must have a minimum paidup capital of Three hundred million pesos (Php300,000,000.00).
8.3 Allowable Investments — A REIT may only invest in:
- Real estate, whether freehold or leasehold, located in the Philippines. A REIT may invest in income-generating real estate located outside of the Philippines: Provided, That such investment does not exceed forty percent (40%) of its deposited property and only upon special authority from the Commission. The Commission in issuing such authority shall consider, among others, satisfactory proof that the valuation of assets is fair and reasonable. An investment in real estate may be by way of direct ownership or a shareholding in an unlisted special purpose vehicle constituted to hold/own real estate;
- Real estate-related assets, wherever the issuers, assets, or securities are incorporated, located, issued, or traded;
- Managed funds, debt securities and listed shares issued by local or foreign non-property corporations;
- Government securities issued on behalf of the Philippine government or governments of other countries and securities issued by multilateral agencies;
- Cash and cash equivalent items; and
- Such other similar investment outlets as the Commission may allow.
8.4 Investment in Synthetic Investment Products — A REIT may invest not more than five percent (5%) of its investible funds in synthetic investment products such as, but not limited to, credit default swaps, credit-linked notes, collateralized debt obligations, total return swaps, credit spread options, and credit default options, and only upon special authority from the appropriate regulatory authority.
8.5 Income-generating Real Estate — At least seventy-five percent (75%) of the deposited property of the REIT must be invested in, or consist of, income-generating real estate.
8.6 Property Development — A REIT must not undertake property development activities whether on its own, in a joint venture with others, or by investing in unlisted property development companies, unless it intends to hold the developed property upon completion. The total contract value of property development activities undertaken and investments in uncompleted property developments should not exceed ten percent (10%) of the deposited property of the REIT.
8.7 Single Entity Limit — Not more than fifteen percent (15%) of investible funds of the REIT may be invested in any one issuer's securities or anyone managed fund, except with respect to government securities where the limit is twenty-five percent (25%).
8.8 Foreign Assets — A REIT may invest in local or foreign, assets, subject to the terms of its articles of incorporation. Where an investment in a foreign real estate asset is made, the REIT should ensure that the investment complies with all the applicable laws and requirements in that foreign country such as, but not limited to, foreign ownership restrictions, if any, and requisites of having good and valid title to that real estate.
8.9 Joint Venture — When investing in real estate as a joint owner, the REIT should make such investment by acquiring shares or interests in an unlisted special purpose vehicle constituted to hold/own the real estate and the REIT should have freedom to dispose of such investment. The joint venture agreement, memorandum and articles of association or other constitutive documents of the special purpose vehicle should provide for a minimum percentage of distributable profits of the special purpose vehicle that will be distributed and grant the REIT veto rights over key operational issues of the special purpose vehicle.
8.10 Aggregate Leverage Limit — The total borrowings and deferred payments of a REIT should not exceed thirty-five percent (35%) of its deposited property: Provided, however, That the total borrowings and deferred payments of a REIT that has a publicly disclosed investment grade credit rating by a duly accredited or internationally recognized rating agency may exceed thirty-five percent (35%) but not more than seventy percent (70%) of its deposited property.
8.11 Related Party Transactions — Any contract or amendment thereto, between the REIT and related parties, including contracts involving the acquisition or lease of assets and contracts for services, must comply with the following minimum requirements:
- Full, fair, timely and accurate disclosures on the identity of the parties, their relationship with the REIT, and other important details of the transaction have been made to the Exchange and the Commission;
- Be on fair and reasonable terms, including the contract price;
- Approved by at least a majority of the entire membership of the board of directors, including the unanimous vote of all independent directors of the REIT;
- Accompanied by a fairness opinion by an independent appraiser done in accordance with the valuation methodology prescribed by the Commission, in the case of an acquisition or disposition of real estate assets and property or share swaps or similar transactions; and
- Any other matter that may be materially relevant to a prospective investor in deciding whether or not to invest in the REIT.
8.12 Valuation — A full valuation of a REIT's assets must be conducted by an independent appraisal company, duly accredited by the Commission, at least once a year in accordance with the applicable rules of asset valuation and valuation methodology as prescribed by the Commission.
8.13 Fund Manager — A REIT must appoint a fund manager that is independent from the REIT and its sponsor(s)/promoter(s) and shall be subject to the following minimum requirements:
- It must be a corporation duly organized under the laws of the Republic of the Philippines or a foreign corporation engaged in the business of fund management with proven track record and duly licensed to do business in the Philippines by the appropriate regulatory agency;
- It must have a minimum paid-up capital stock or assigned capital of Ten million pesos (Php10,000,000.00), unless the Commission provides otherwise;
- Its office in the Philippines must have a meaningful role in its business activities and must perform accounting, compliance and investor relations services in the Philippines;
- It must comply with the requirements of the relevant law or appropriate regulatory authority on the number of independent directors;
- It must comply with the corporate governance requirements, including the fit and proper rule, prescribed by this Act and its IRR;
- It must adopt measures as may be prescribed by the IRR of this Act to avoid conflicts of interest in the discharge of its duties as fund manager for the REIT; and
- It must employ a resident chief executive officer and at least two (2) full-time professional employees who have a track record and experience in financial management as well as experience in the real estate industry.
8.14 REIT Property Manager — The REIT must appoint a REIT property manager who shall be responsible for managing the real estate assets such as apartment buildings, office buildings, warehouses, hospital buildings, medical facilities, hotel buildings, resort facilities, manufacturing plants and other physical assets of the REIT. The contract between the REIT and the property manager must comply with the disclosure and other requirements prescribed for related party transactions.
The REIT property manager shall be independent from the REIT and its sponsor/promoter and possess the qualifications and be subject to such functions and responsibilities, restrictions and other requirements prescribed by the Commission.
The property manager must comply with the following minimum qualifications:
- It must comply with the requirement of the SRC or the Commission on the number of independent directors;
- It must comply with the corporate governance requirements, including the fit and proper rule, prescribed by this Act and its IRR; and
- It must adopt measures as may be prescribed by the IRR of this Act to avoid conflicts of interest in the discharge of its duties as property manager for the REIT.
8.15 Independent Directors — At least one-third (1/3) of the board of directors of a REIT must be independent directors.
8.16 Fit and Proper Rule — To maintain the quality of management of the REIT and afford better protection to REIT investors, the Commission, or the concerned regulatory agency, shall prescribe or pass upon and review the qualifications and disqualifications of individuals elected or appointed as directors or officers of the REIT, REIT fund managers, REIT property managers, distributors and other REIT participants and disqualify those found unfit. The appropriate regulatory agency may disqualify, suspend or remove any director or officer who commits or omits an act which renders him unfit for the position.
In determining whether an individual is fit and proper to hold the position, regard shall be given to his integrity, experience, education, training, and competence: Provided, however, That the following persons shall in no case be allowed to serve or act in the capacity of officer, director or consultant of any REIT, REIT fund manager, or REIT property manager:
- Any person convicted of any crime involving any security or financial product;
- Any person convicted of an offense involving fraud or embezzlement, theft, estafa or other fraudulent acts or transactions;
- Any person who, by reason of any misconduct, is enjoined by order, judgment, or decree by any court, quasi-judicial body or administrative agency of competent jurisdiction from acting as a director, officer, employee, consultant, or agent occupying any fiduciary position;
- Any person found by the appropriate regulatory agency to have violated, or aided, abetted, counseled, commanded, induced, or procured the violation of this Act, the Corporation Code, the General Banking Law, the Insurance Code, the SRC, or any related laws and any rules, regulations or orders thereunder;
- Any person judicially declared to be insolvent, or incapacitated to contract; and vi. Any person found guilty by a foreign court, regulatory authority or government agency of the acts or violations similar to any of the acts or misconduct enumerated in the foregoing paragraphs.
A conviction in the first instance shall be considered sufficient ground for disqualification.
8.17 Executive Compensation — The total annual compensation of all executive officers of the REIT shall not exceed such percentage of the net income before regular corporate income tax of the REIT during the immediately preceding taxable year, as may be provided in the IRR of this Act and shall be governed by the provisions on related party transactions.
8.18 Fund Manager and Property Manager Fees — Fees received by the REIT fund manager and the REIT property manager from the REIT shall not exceed one percent (1%) of the net asset value of the assets under management.
9.1 Requirements — The REIT shall comply with the reportorial and disclosure requirements prescribed by the Corporation Code, the SRC and the Exchange. At the minimum, the REIT shall disclose the following information:
- Material contracts as defined under Section 3 of this Act;
- Allowable investments of the REIT under Section 8.3 hereof;
- Related party transactions under Section 8.11 hereof;
- Contracts between the REIT and fund manager or the property manager, including the identity of the parties, contract price, fees and the other basic terms of the contract;
- Valuation of the real estate properties of the REIT, including the valuation methodology used therefore;
- Material changes in the income stream of the REIT;
- Any fee received by any party relating to the acquisition or disposition of the real estate of the REIT;
- Merger, consolidation, joint venture, takeover or spin-off involving the REIT;
- Any modification of the rights of the holders of any class of securities issued by the REIT and the corresponding effect of such modification upon the rights of the holders;
- Any declaration of cash dividend, stock dividend, property dividend and pre-emptive rights by the REIT;
- Appointment of a receiver or liquidator for the REIT;
- Change in control of the REIT;
- Losses or potential losses which amount to at least five percent (5%) of the deposited property of the REIT;
- Occurrence of any event of dissolution with details in respect thereto;
- Acts or facts that might seriously impair the business activities of the REIT;
- Creation of mortgages, pledges or liens on the properties of the REIT;
- Any development activity undertaken by the REIT, including the essential details thereof;
- Direct and indirect ownership of directors and principal officers in the securities of the REIT;
- Any amendment to the articles of incorporation and bylaws of the REIT; and
- Any planned acquisition of outstanding shares or disposition of treasury shares of the REIT.
9.2 Special Quarterly and Annual Reports — In addition to the quarterly and annual reportorial and disclosure requirements prescribed for public and listed companies, the REIT shall make a report on and disclose the following to the Commission and the Exchange:
- Summary of all real estate transactions entered into during the period, including the identity of the parties, the contract price, and their valuations, including the methods used to value the assets;
- Summary of all the REIT's real estate assets, including the location of such assets, their purchase prices and the latest valuations, rentals received and occupancy rates, and/or the remaining terms of the REIT's leasehold properties;
- Comparative summary of the financial performance of the REIT covering various time periods (e.g. quarterly, one (1)-year, three (3)-year, five (5)-year or (10)-year).
9.3 REIT Plan — The REIT plan or prospectus shall comply with the requirements of the SRC and disclose the risks specific to investing in REITs.
9.4 Failure of Compliance — Failure to comply with reportorial and disclosure requirements shall subject the REIT to the applicable penalties under the SRC and the rules of the Exchange, without prejudice to the filing of the appropriate administrative, civil or criminal action under this Act or existing laws.
(Sgd.) JUAN PONCE ENRILE | (Sgd.) PROSPERO C. NOGRALES |
President of Senate | Speaker of the House of Representatives |
(Sgd.) EMMA LIRIO-REYES | (Sgd.) MARILYN B. BARUA-YAP |
Secretary of Senate | Secretary General House of Representatives |