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SEC weighing REIT proposals, prods tax officials on perks

Posted on 10:52 PM, November 07, 2010 [ BusinessWorld Online ]
THE PROPERTY sector and the Philippine Stock Exchange (PSE) are against revisions sought by the government on rules implementing real estate investment trusts or REITs.
This was shown in position papers submitted to the Securities and Exchange Commission (SEC) up to last week, the body’s top official said.
The corporate regulator wants to complete a review of the REIT rules in December to finally introduce the new investment scheme in the market.
“[Industry players] are mostly against the changes, which is expected,” SEC Chairwoman Fe B. Barin told reporters late last week.
The SEC extended the deadline for filing of comments on proposed REIT rules changes to Nov. 5 from Oct. 29. The call for comments stemmed from the Bureau of Internal Revenue’s proposal to revise the rules, particularly to force REITs to sell 51% of their shares when they go public to raise capital from the required 33.3% under the law.
The REIT law, which took effect last December, establishes the framework for REITs -- corporations that use a pool of investor funds to purchase and manage real estate assets. REITs, which will be given tax perks, can raise money by conducting an initial public offering.
“As of now, we have received five comments although one of them represents four or five groups,” Ms. Barin said, referring to the Asia Pacific Real Estate Association (APREA) Philippine Chapter, which also represented the Fund Managers Association of the Philippines, the Investment House Association of the Philippines, and the Trust Officers Association of the Philippines.
The APREA headquarters led by its chairman Peter Mitchell and the PSE also sent inputs, Ms. Barin said. She declined to name the others, but said property companies sent position papers through industry groups.
Property giants have expressed interest in REITs. Ayala Land, Inc. has set up AyalaLand Commercial REIT, Inc. for its $300-million REIT venture.
The government also wants REIT firms to invest 50% of fresh capital on infrastructure projects in the first year and the rest of the funds until the end of the third year of establishment, in effect banning debt servicing.
“We will have to consider these [inputs] as against the reasons of the Department of Finance for wanting the rules changed,” Ms. Barin said.
The corporate regulator is looking at completing the revisions by next month.
“We should be able to do that not later than this year,” Ms. Barin said.
“We can come out with all the rules but without the BIR do you think the investors will go in? They would like to know the complete package of the rules,” Ms. Barin added.
Investors and REIT issuers might find the revisions unfair, an analyst said.
“There is no more incentive to go into REIT if [REIT issuers] are not majority shareholders. They will not be comfortable as minority shareholders might create a new direction for the REIT firm,” Astro C. del Castillo, managing director of brokerage firm First Grade Holdings, Inc., said in a phone interview yesterday.
On debt payment, Mr. del Castillo said: “Companies have to retire debt so they should have a free hand to use fresh funds.”
The local property industry players are willing to have a dialogue with the government on points of contention over the rules on REITs, Antonino T. Aquino, president and chief executive of Ayala Land told reporters late last week, declining to elaborate. -- N. J. C. Morales

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