[Table of Contents and Introduction / Salient Points; Rules 1-3; Rule 4; Rule 5; Rule 6; Rule 7; Rule 8; Rule 9; Rules 10-11]

Rule 5 – Allowable Investments of the REIT 

SEC. 1. Allowable Investments. A REIT may only invest in: 

1.1 Real estate. 

a. A REIT may invest in real estate located in the Philippines, whether freehold or leasehold. At least seventy-five percent (75%) of the Deposited Property of the REIT shall be invested in, or consist of, income generating real estate. Deposited Property that should be invested in Income-generating Real Estate located in the Philippines shall in no case be less than 35% of the Deposited Property. 

b. A REIT may invest in income generating real estate located outside of the Philippines; Provided, that such investment does not exceed forty percent (40%) of its Deposited Property and only upon special authority from the Commission. The Commission in issuing such authority shall consider, among others, satisfactory proof that the valuation of assets is fair and reasonable. 

c. An investment in real estate may be by way of direct ownership or a shareholding in a domestic special purpose vehicle constituted to hold/own real estate, subject to the conditions provided under these Rules. 

d. Acquisition of a real estate shall include the ownership of all rights, interests and benefits related to the ownership of the real estate. 

e. The real estate to be acquired by the REIT should have a good track record for three 3 years from date of acquisition. 

1.2 Real estate-related assets, wherever the issuers, assets, or securities are incorporated, located, issued, or traded. 

1.3 Evidence of indebtedness of the Republic of the Philippines and other evidence of indebtedness or obligations, the servicing and repayment of which are fully guaranteed by the Republic of the Philippines, such as, but not limited to, treasury bills, fixed rate treasury notes, retail treasury bonds, (denominated either in Philippine or in foreign currency) and foreign currency linked notes. 

1.4 Bonds and other evidence of indebtedness issued by: 

• a. the government of any foreign country with which the Philippines maintains diplomatic relations, with a credit rating obtained from a reputable credit rating agency or a credit rating agency acceptable to the Commission that is at least two (2) notches higher than that of ROP bonds; and

• b. supranationals (or international organizations whose membership transcends national boundaries or interests, e.g. International Bank for Reconstruction and Development, Asian Development Bank). 

1.5  Corporate bonds of non-property privately-owned domestic corporations duly registered with the Commission with a current credit rating of at least “A” by an accredited Philippine rating agency. 

1.6  Corporate bonds of a foreign non-property corporation registered in another country provided that said bonds are duly registered with the Commission and the foreign country grants reciprocal rights to Filipinos. 

1.7  Commercial papers duly registered with the Commission with a current investment grade credit rating based on the rating scale of an accredited Philippine rating agency at the time of investment. 

1.8  Equities of a non-property company listed in a local or foreign stock exchange, provided that these stocks shall be issued by companies that are financially stable, actively traded, possess good track record of growth and have declared dividends for the past three (3) years. 

1.9  Cash and Cash Equivalent Items. 

1.10  Collective investment schemes duly registered with the Commission or organized pursuant to the rules and regulations of the BSP; provided however that: (i) the collective investment scheme must have a track record of performance at par with or above the median performance of pooled funds in the same category as appearing in the prescribed weekly publication of the Net Asset Value Per Unit of the Collective

Investment Scheme units; and (ii) new collective investment schemes may be allowed provided that its fund manager has at least a three (3)-year track record in managing pooled funds. 

1.11  Offshore mutual funds with ratings acceptable to the Commission. 

1.12  Investments of the REIT shall be recognized and measured in its financial statements in accordance with the requirements of PFRS and the applicable interpretations or any amendments thereto, as follows: 

• a. Investment Property (PAS 40 and related standards); 

• b. Financial Assets (PAS 39, PFRS 7 and related standards); 

• c. Investments in Associates (PAS 28); 

• d. Investments in Subsidiaries (PAS 27); 

• e. Interests in Joint Ventures (PAS 31); 

• f. Non-current Assets Held for Sale and Discontinued Operations (PFRS 5);

• g. Leases (PAS 17). 

1.13  Synthetic Investment Products, provided that: (i) Synthetic Investment Products shall not constitute more than five percent (5%) of the Investible Funds of the REIT; (ii) the REIT shall avail of such Synthetic Investment Products solely for the purpose of hedging risk exposures of the existing investments of the REIT; (iii)the Synthetic Investment Products shall be accounted for in accordance with PFRS; (iv) the Synthetic Investment Products shall be issued by authorized banks or non-bank financial institutions in accordance with the rules and regulations of the BSP and/or the SEC; and (iv) the use of Synthetic Investment Products shall be disclosed in the REIT Plan and under special authority from the SEC. 

SEC. 2. Property Development. A REIT shall not undertake property development activities whether on its own, in a joint venture with others, or by investing in unlisted property development companies, unless: (i) it intends to hold in fee simple the developed property for at least three (3) years from date of completion; (ii) the purchase agreement of the said 

property is made subject to the completion of the building with proper cover for construction risks; (iii) the development/construction of real estate shall be carried out on terms which are the best available for the REIT and which are no less favorable to the REIT than an arm’s length transaction between independent parties; and (iv) the prospects for the real estate upon completion can be reasonably expected to be favorable. 

The total contract value of property development activities undertaken and investments in uncompleted property developments should not exceed ten percent (10%) of the Deposited Property of the REIT. 

SEC. 3. Leasehold Property. Where a leasehold property is acquired, the consent of the regulatory authority to transfer the lease shall be obtained. The lease shall be a registered lease. 

SEC. 4. Encumbrances. Unless otherwise disclosed, all real estate shall be free from all encumbrances at the time of acquisition, except for charges entered by financial institutions in relation to loan facilities extended for the construction or acquisition of the real estate. 

SEC. 5. Insurance. All real estate acquired by the REIT shall be insured for their full replacement value, including loss of rental, where appropriate, with insurance companies approved by the Fund Manager. 

SEC. 6. Single Entity Limit. Not more than fifteen percent (15%) of the Investible Funds of the REIT may be invested in any one issuer’s securities or any one managed fund, except with respect to Philippine government securities where the limit is twenty-five percent (25%). 

SEC. 7. Foreign Assets. A REIT may invest in local or foreign assets, subject to the terms of its Constitutive Documents and specific provisions of these Rules. Where an investment in a foreign real estate asset is made, the REIT should ensure that the investment complies with all the applicable laws and requirements in that foreign country, such as, but not limited to, foreign ownership restrictions, if any, and requisites of having good and valid title to the real estate. 

SEC. 8. Aggregate Leverage Limit. The total borrowings and deferred payments of a REIT should not exceed thirty-five percent (35%) of its Deposited Property; provided, however, that the total borrowings and deferred payments of a REIT that has a publicly disclosed investment grade credit rating by a duly accredited or internationally recognized rating agency may exceed thirty-five percent (35%) but not more than seventy percent (70%) of its Deposited Property. Provided, further, that in no case shall a Fund Manager, borrow for the REIT from any of the funds under its management. 

SEC. 9. Related Party Transactions. Any contract or amendment thereto, between the REIT and Related Parties, including contracts involving the acquisition or lease of assets and contracts for services, shall comply with the following minimum requirements: 

a. Full, fair, timely and accurate disclosures on the identity of the parties, their relationship with the REIT, and other important terms and conditions of the transaction have been made to the Exchange and the Commission; 

b. Be on fair and reasonable terms, including the contract price; 

c. Approved by at least a majority of the entire membership of the board of directors, including the unanimous vote of all independent directors of the REIT; 

d. Must also be approved by the Related Party Transactions Committee which is constituted with the sole task of reviewing related party transactions. Majority of its members must be independent directors who shall vote unanimously in approving such related party transactions. 

e. Compliance with SEC Memorandum Circular No. 10, series of 2019 on the Rules on Material Related Party Transactions for Publicly-Listed Companies, or such other relevant regulations that may be issued by the Commission. 

f. Accompanied by a fairness opinion by an independent appraiser done in accordance with the valuation methodology prescribed by the Commission, in the case of an acquisition or disposition of real estate assets and property or share swaps or similar transactions; and 

g. Any other matter that may be materially relevant to a prospective investor in deciding whether or not to invest in the REIT. 

SEC. 10. Valuation. A full valuation of a REIT’s assets shall be conducted by an independent Property Valuer, duly accredited by the Commission, at least once a year. No valuer shall value the same REIT for more than three (3) consecutive years. Subject to a curing period of three (3) years, the REIT may, however, re-engage the services of said property valuer. The Valuation Report, including the standards of asset valuation and valuation methodology shall be disclosed in the Annual Report of the REIT. 

SEC. 11. Records. All procedures and processes followed, and decisions made in relation to whether or not to invest in a particular property shall be fully, properly and clearly documented by the REIT, the Fund Manager and the Property Manager, as may be applicable. 

SEC. 12. Reportorial and Disclosure Requirements. 

12.1 Requirements. The REIT shall comply with the reportorial and disclosure requirements prescribed by the Revised Corporation Code, the SRC and the relevant Exchange. The BIR shall likewise be furnished copies of the reports herein prescribed. At the minimum, the REIT shall disclose the following information in its Annual, Quarterly or Current Report: 

• a. Material Contracts as defined under Rule 3(v); 

• b. Breach of the borrowing limit of the REIT and how and when to address said breach; 

• c. Investments of the REIT; 

• d. A proposed change in the Fund Manager, Property Manager, Property Valuer or auditor of the REIT, and the reasons therefore; 

• e. Valuation of the real estate properties of the REIT, including the valuation methodology used therefore; 

• f. Material changes in the income stream of the REIT; 

• g. Material changes in the REIT’s financial forecast; 

• h. Any fee received by any party relating to the acquisition or disposition of the real estate of the REIT; 

• i. Giving or receiving a notice of intention to undertake a merger, consolidation, joint venture, takeover or spin-off involving the REIT; 

• j. Any modification of the rights of the holders of any class of securities issued by the REIT and the corresponding effect of such modification upon the rights of the holders; 

• k. Any declaration of cash dividend, stock dividend, property dividend and pre-emptive rights by the REIT; 

• l. Appointment of a receiver or liquidator for the REIT; 

• m. Losses or potential losses which amount to at least five percent (5%} of the value of the Deposited Property of the REIT; 

• n. Occurrence of any event of dissolution with details in respect thereto; 

• o. Acts or facts that might seriously impair the business activities of the REIT; 

• p. Any development activity undertaken by the REIT, including the essential details thereof; 

• q. Direct and indirect ownership of directors and Principal Officers in the securities of the REIT; 

• r. Any amendment to the Constitutive Documents of the REIT; 

• s. Any major change in accounting policy of the REIT; and 

• t. Any planned acquisition of outstanding shares or disposition of treasury shares of the REIT. 

u. Summary of all real estate transactions entered into during the period, including the identity of the parties, the contract price and their valuations, including the methods of valuation; 

v. Summary of all the REIT’s real estate assets, including the location of such assets, their purchase prices and the latest valuations, rentals received and occupancy rates and/or the remaining terms of the REIT’s leasehold properties; and 

w. Comparative summary of the financial performance of the REIT for the same periods. 

x. Any other disclosures as may be required by the Commission or the relevant Exchange including where applicable, compliance by the Sponsor/Promoter with its Reinvestment Plan.

12.2 Failure of Compliance. Failure to comply with reportorial and disclosure requirements shall subject the REIT to the applicable penalties under the Securities Regulation Code and the rules of the relevant Exchange, without prejudice to the filing of the appropriate administrative, civil and/or criminal action under the REIT Act of 2009 or existing laws. 

[Table of Contents; Rules 1-3; Rule 4; Rule 5; Rule 6; Rule 7; Rule 8; Rule 9; Rules 10-11]