SEC’s Herbosa: 33% public float ‘ideal’ for Reit

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Securities and Exchange Commission (SEC) supports lowering the public ownership requirement for real estate investment trusts (Reit) to 33 percent to encourage creation of the investment instruments, SEC Chairperson Teresita Herbosa said on Tuesday.

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Herbosa told reporters on the sidelines of the Latham & Watkins Philippines Conference 2016 on Tuesday that the commission has finished its study on the ideal public ownership requirement for Reits, which points to an ideal “33 percent” public float from the current 40 percent.

The Republic Act No. 9856 or Reit Act was passed into law in 2009 but no property developers have launched their Reit vehicles due to issues with the public ownership requirement and taxation on asset transfers.

A REIT is a listed company that pools funds from investors, using these to finance its acquisitions of properties and assets that can yield income over time.

Herbosa said the SEC is expecting to complete the implementing rules and regulations (IRR) of the Reit law this month, which is supposed to be done with the Bureau of Internal Revenue (BIR) for the taxation portion.

“We’re already finished with the study and we’ll definitely propose a lower minimum public ownership requirement [of]at least 33 percent. And maybe [we’ll] just reserve the right to increase it when the markets are okay,” Herbosa said.

“We will be coming out with the rules but we haven’t talked to the BIR on the tax issues,” she added.

Currently, the SEC requires 40 percent public float for Reits in the first two years of listing, which will increase to 67 percent from the third year of listing onwards.

“I don’t know if we’re going to have increase within so many years. What we’ll put in the IRR will be something like, we will review it within five years, and see if there’s a need to increase,” Herbosa said.

Aside from the high public ownership requirement, property firms earlier raised the issue of taxation in asset transfers, which are now taxed at a rate of 12 percent for value added tax on initial property transfers to Reits.

The SEC still has to coordinate with the BIR on the taxation portion, but Herbosa stressed that there should be simplified corporate tax rates as a whole.

“We were trying to balance things when we proposed the reforms on the income taxes. They are proposing to take away some exemptions. Probably we’ll also do that in the capital markets. [There’s a push from the Philippine Stock Exchange to] do away with the IPO tax, then maybe we can increase the stock transaction tax even a little,” Herbosa said.

“And this one has been the subject of CMDC [Capital Markets Development Council] discussions: We have at least to make things uniform and clear because there are different rates for non residents, residents, bonds which are more than one year, and those that are [existing for a]few years. I think we’ll have to simplify—that’s the major concern. We need to simplify the tax rates,” she added.

Major property developers such as SM Prime Holdings Inc. and Megaworld Corp. have expressed interest in having a Reit vehicle, as it will give investors the option to put their money in actual projects rather than the usual investments made in a property company.

Last month, Calata Corp. has announced that it is forming its Reit arm Calata Land Inc., which will be used to acquire land to be leased out to foreign partners in building Mactan Leisure City, a planned 14-hectare integrated casino and resorts complex which will be jointly owned by the Calata and Sino group.

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