On 20 January 2020, the Securities and Exchange Commission (SEC) has issued Memorandum Circular No. 1, Series of 2020 on the Revised Implementing Rules and Regulations of Republic Act NO. 9856, otherwise known as the Real Estate Investment Trust (REIT) Act of 2009 (Revised REIT IRR). The Revised REIT IRR will take effect on 7 February 2020.

Key provisions in the Revised REIT IRR include:

  • The minimum public ownership requirement (MPO) of a REIT has now been reduced to at least one-third (1/3) of the outstanding capital of the REIT, with at least 1,000 public shareholders each owning at least 50 shares.

    Previously, in 2011, the MPO requirement was increased to 40% of the outstanding capital stock of the REIT for the initial year with a requirement to increase to 67% within three years from listing.


  • Reinvestment in the Philippines is now required for any sponsor or promoter who contributes income-generating Real Estate to a REIT. For this purpose, relevant listing rules require the submission of a reinvestment plan with a firm undertaking to reinvest (a) any proceeds realized by the sponsor or promoter from the sale of REIT shares and other securities issued in exchange for any of its income-generating real estate transferred to the REIT; and (b) any money raised by the sponsor or promoter from the sale of any of its income-generating real estate to the REIT, in any real estate, including any redevelopment thereof or infrastructure projects in the Philippines. The sponsor or promoter must make the reinvestment within one year from the date of receipt of the proceeds. This requirement is intended to ensure that whatever capital is raised through a REIT in the Philippines will be reinvested in the country.


  • Amendments to the requirements for REIT Fund Managers:

    (a) Under the Revised REIT IRR, a majority of the members of the board of directors of a REIT Fund Manager must be independent directors. At least one independent director must have a working knowledge of the real estate industry, fund management, corporate finance or other relevant finance-related functions.

    (b) The directors of the REIT (including the independent directors) must not occupy more than 49% of the board of directors of the REIT Fund Manager.

    (c) To be deemed compliant with the track record requirement under the REIT Act, the REIT Fund Manager's chief executive officer and at least two of its full-time professional employees must have a track record and experience in financial management and in the real estate industry for at least three years prior to their employment.

    The previous track record requirement for the chief executive officer and two full-time employees of a REIT Fund Manager under the 2010 REIT IRR was at least five years.


  • Amendments to the requirements for REIT Property Managers:

    (a) A majority of the members of the board of directors of a REIT Property Manager must be independent directors. At least two of the independent directors must have a working knowledge of the real estate industry.

    (b) The board of directors of the REIT (including the independent directors) must not occupy more than 49% of the board of directors of the REIT Property Manager.

    (c) A REIT Property Manager must employ any one of a real estate consultant, a real estate appraiser, or a real estate assessor. At least two responsible officers of the REIT Property Manager must have at least three year track record in property portfolio management, compared to the previous five-year track record requirement under the original Implementing Rules and Regulations.


Actions to Consider

Interested parties, particularly real estate companies that are qualified to establish a REIT, may want to assess the requirements under the Revised REIT IRR on the feasibility of establishing a REIT in the Philippines. Through the Revised REIT IRR, the SEC has addressed the obstacles previously raised by various stakeholders, i.e., the high MPO requirement for those looking to establish a REIT, and the tax-free treatment of the capital contribution to the REIT, which has been previously addressed under the TRAIN Act of 2018. It will now be easier for real estate companies to establish a REIT as a viable way of realizing the value of their assets, raising more capital, and taking advantage of the tax incentives available (e.g., ability to deduct dividends paid from its taxable net income).

Entities that are engaged in the business of fund management and property management should review the new requirements under the Revised REIT IRR and assess their compliance with these requirements.

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