The Securities and Exchange Commission (SEC) has proposed amendments to the rules governing real estate investment trusts (REITs) in a bid to broaden investment opportunities and strengthen the countryโs REIT framework.
Released for public comment on November 18, the draft changes to SEC Memorandum Circular No. 1, Series of 2020, aim to expand the range of income-generating real estate assets eligible for REIT portfolios, provide greater flexibility in the reinvestment of listing proceeds, and ease compliance with minimum public ownership requirements.
SEC Chairperson Francis Lim said the reforms are intended to keep the REIT system โrobust and responsive to evolving market needs,โ enabling real estate firms to unlock more capital and support economic growth.
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Under the proposal, REITs may own income-generating properties through wholly owned, unlisted special purpose vehicles. The definition of income-generating assets will also cover properties with predictable revenue streams, including assets in the transport, ICT, energy, and infrastructure sectors; parking facilities; warehouses; malls; buildings; machineries; and real rights such as usufructs, easements, and registered leases.
The broader definition is expected to increase the number of companies eligible to operate as REITs.
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The SEC also seeks to extend the reinvestment period for proceeds from one year to two years. Permitted reinvestments include equity investments, loans, debt instruments, or loan repayments tied to real estate or infrastructure projectsโwhether government-led or privateโin the Philippines.
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To provide flexibility, the draft rules allow temporary dips in minimum public ownership (MPO) when REITs issue additional shares to sponsors or their affiliates in exchange for income-generating assets, provided the transaction has SEC and exchange approval. REITs must also submit a plan to restore MPO levels and publicly disclose the breach and remedial steps.
The SEC is accepting stakeholder feedback before finalizing the amendments.
