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REIT dropped

[ ] August 5, 2011

SM Prime Holdings Inc., the mall operating unit of the Sy-led SM Group of Companies, is no longer interested in raising funds through the real estate investment trust route.

Jeffrey C. Lim, SM Prime chief finance officer, said the company is put off by the REIT’s implementing rules and guidelines (IRR), which require public ownership to be raised to 67 percent in three years.

"We don’t think we will avail of the REIT given the minimum public ownership. We feel we should maintain control," said Lim during the earnings briefing by its mother company SM Investments Corp. yesterday.

SM Prime has finished its fund-raising activity for needs until next year, according to Lim.

Jose Sio, SM Investments chief finance officer, said control of business is crucial for the SM Group since financiers look at management control when assessing whether to lend or not.

"One of the covenants we have in SM is that we should have controlling interest... Lenders look at the management. If they have confidence in the management, they will lend at attractive interest (rates)," said Sio.

SM Prime is the first company to publicly announce it is not going the REIT way in raising funds.

Ayala Land Inc., in a communication to Malaya Business Insight, said it continues to study the REIT way.

"We are currently reviewing the recently released REIT rules and regulations as issued by the BIR, and evaluating the implications thereof on our current business plans and strategies. As such, we are constrained from making any definitive statement on the matter at this time," Ayala Land said.

The 67 percent minimum level for REIT public floats has been strongly required by the government before agreeing to provide tax perks.

Under the IRR, REITs will be subjected to 30 percent income tax, value-added tax, and a 50 percent discount on documentary stamp tax (DST).

The BIR said that income tax for REITs will be computed after the allowable deductions and dividend payments. The regular tax rules require companies to pay 35 percent on income, less the allowable deductions.

REITs, however, are required to have a public ownership of 40 percent in the first two years and 67 percent on the third year to continue availing of incentives.

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