[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 6 – Fund Manager 

SEC. 1. Fund Manager. A REIT shall appoint a Fund Manager who shall be independent of the REIT, its promoter/s or sponsor/s. To ensure independence of the Fund Manager from the REIT, the following shall be complied with: 

1.1 Majority of the members of the board of the REIT Fund manager must be independent directors, at least one (1) of whom must have a working knowledge of the real estate industry, fund management, corporate finance, or other relevant finance-related functions; 

1.2 The directors (including the independent directors) of the REIT and its Sponsors/Promoters cannot jointly occupy more than 49% of the board of directors of the REIT Fund Manager. 

SEC. 2. Organization and Requirements. 

2.1 An entity may only engage in the business of a REIT Fund Manager once it has obtained the necessary license to act as such, in accordance with the rules and regulations of the Commission. 

2.2 A REIT Fund Manager can either be a registered domestic corporation, a trust entity with an existing BSP license, or a foreign corporation duly licensed to do business in the Philippines, subject to the following minimum requirements: 

a. duly licensed under these Rules to engage in the business of fund management for REIT. If the Fund Manager is a trust entity with an existing BSP license, it shall be covered by existing BSP rules and regulations governing trust entities and regulations which the BSP may from time to time issue. 

• i. A Fund Manager that is a BSP registered trust entity is no longer required to secure a separate license for a REIT Fund Manager from the Commission, Provided: that the REIT has sufficiently established with the Commission that its appointed Fund Manager has complied with all the requirements under the REIT Act and this Implementing Rules and Regulations.

• ii. Notwithstanding the immediately preceding paragraph, all REIT Fund Managers shall be supervised by the Commission. 

b. with at least three [3]-year track record in the area of fund management, corporate finance, other relevant finance-related functions, property management in the real estate industry or in the development of real estate industry.

c. with a minimum paid-up capital of Fifty Million Pesos (Php 50,000,000.00). This capitalization shall remain unimpaired at any given time, otherwise, an additional capital infusion shall be made within three (3) working days from such impairment, Provided: that the Fund Manager shall comply with the additional paid-up capital, and/or other guidelines that may be prescribed by the Commission, in consideration of the nature, scale, and complexity of the Fund Manager’s operations; 

d. with sufficient human, organizational and technical resources for the proper performance of its duties, including two (2) responsible officers or a trust officer, in case of a trust entity, each of whom shall have at least three (3) years track record in fund management. At least one (1) of the responsible officers or a trust officer, in case of a trust entity, shall be available at all times to supervise the business of the Fund Manager; 

2.3 Its physical office in the Philippines shall have a meaningful role in its business activities and must perform accounting, compliance and investor relations services in the Philippines. The following non- exhaustive factors are relevant to the assessment of the role of the Fund Manager in its business activities:

• a. the composition and mandate of the Fund Manager’s board of directors or trust committee and management committees; 

• b. the extent to which the chief executive officer or its equivalent, or its trust officer, and directors, or trust committee members who are resident of the Philippines participate in the formulation of investment strategies and financing activities of the Fund Manager; property acquisition; leasing; operational and financial reporting (including operating budgets); appraisals; audits; market review; accounting and reporting procedures, as well as refinancing and asset disposition plans; 

2.4 Its chief executive officer or any equivalent officer, or trust officer must have experience in financial management as well as experience in the real estate industry for at least three (3) years. 

A Fund Manager is deemed to have complied with the track record requirement of the REIT Act if its chief executive officer and not less than two (2) of its full-time professional employees have a track record and experience in financial management as well as experience in the real estate industry for at least three (3) years prior to their employment. The chief executive officer and the 2 full-time qualified professional employees shall all be residents of the Philippines; 

2.5 It must comply with the requirements on the number of independent directors, as provided under Sec. 1 hereof and under relevant law or appropriate regulatory authority, such as but not limited to pertinent provisions of the SRC and the Revised Code of Corporate Governance; 

2.6 The qualifications and disqualifications of the directors of the Fund Manager must comply with the provisions of the Revised Code of Corporate Governance and the fit and proper rule prescribed in this IRR. 

2.7 Must comply with the additional requirements or qualifications for a Fund Manager in accordance with the Fit and Proper Rule, the Revised Code of Corporate Governance, and such relevant regulations, which the Commission may prescribe from time to time. 

SEC. 3. Functions of the Fund Manager. The Fund Manager shall perform the following functions: 

3.1 Implement the investment strategies of the REIT by: (i) determining the allocation of the Deposited Property to the allowable investment outlets in accordance with the REIT Plan and the investment strategy of the REIT; and (ii) selecting income-generating real estate in accordance with the investment strategy of the REIT. 

Notwithstanding the written instructions of the REIT, it shall be the fiduciary responsibility of the Fund Manager to objectively evaluate the desired investments, and formally advise the REIT of its recommendation, even if contrary to the instruction; 

3.2 Oversee and coordinate the following activities: property acquisition; leasing; operational and financial reporting (including operating budgets); appraisals; audits; market review; accounting and reporting procedures, as well as refinancing and asset disposition plans; 

3.3 Cause a valuation of any of the real estate and other properties of the REIT to be carried out by the Property Valuer once a year and whenever the Fund Manager believes that such valuation is appropriate; 

3.4 Take all necessary measures to ensure: (i) that the Net Asset Value per unit of a REIT is calculated as and when an annual valuation report is issued by the Property Valuer for the relevant period, and that such Net Asset Value per unit shall be disclosed in the annual reports; (ii) that the investment and borrowing limitations set out in the REIT Plan and the conditions under which the REIT was authorized are complied with; (iii) that all transactions carried out by or on behalf of the REIT are conducted at arm’s length; (iv) that at all times a REIT has proper legal title to the real estate it owns, as well as to the contracts (such as property contracts, rental agreements, joint venture or joint arrangement agreements, and any other agreements) entered into on behalf of the scheme with respect to its assets and that each such contract is legal, valid and binding and enforceable by or on behalf of the REIT; and (v) that the Property Manager obtains adequate property insurance for the real properties of the REIT from insurance companies approved by the Fund Manager. It shall take custody of all relevant documents supporting the insurance taken on real properties of the REIT. 

3.5 Perform all such functions necessary and incidental to asset management. 

SEC. 4. Minimum Documentary Requirements. 

4.1 The arrangement between the REIT and the Fund Manager shall be covered by a written document entered into by the parties, accompanied by a Secretary’s Certificate attesting to the approval by the board of directors of the REIT of the appropriate resolutions for the: (i) appointment of the Fund Manager, (ii) the establishment of the account, and (iii) designation of signatories to the account. 

4.2 The contract between the REIT and the Fund Manager shall comply with the disclosure and other requirements prescribed for Related Party Transactions. The arrangement between the REIT and the Fund Manager shall be covered by a written document stating the following:

• a. title or nature of contractual agreement in noticeable print; 

• b. legal capacities, in noticeable print, of parties sought to be covered;

• c. purposes and objectives; 

• d. funds and/or properties subject of the arrangement; 

• e. distribution of the funds and/or properties; 

• f. duties and powers of the Fund Manager; 

• g. liabilities of the Fund Manager; 

• h. reports to the REIT, Commission, BIR and Exchange; 

• i. details of any custodianship arrangement; 

• j. terms, including period of engagement, termination of contractual arrangement and, inappropriate cases, provision for successor Fund Manager; 

• k. the exact amount or rate of the compensation of the Fund Manager, provided that the amount of fees that shall be charged to the REIT shall cover the fair and equitable share of the REIT in the total routine administrative expenses of the Fund Manager such as salaries and wages, supplies, credit investigation, collateral appraisal, security, messengerial and janitorial services, supervision fees imposed by the relevant regulatory agency and internal audit fees. 

• However, the Fund Manager may charge the REIT for special expenses in case such expenses are: (1) necessary to preserve or enhance the value of the fund; (2) payable to a non-related third party covered by a separate contract, and (3) disclosed to the REIT shareholders. Provided, however, that in no case shall the fees collected by the Fund Manager exceed 1 % of the net asset value of the assets under management;

• l. if the Fund Manager is a trust entity, a statement in noticeable print to the effect that the funds and properties are not covered by the Philippine Deposit Insurance Corporation and that losses, if any, shall be for the account of the REIT; and 

• m. disclosure requirements for transactions requiring prior authority and/or specific written investment directive from the REIT, court of competent jurisdiction or other competent authority. 

4.3 A copy of the written agreement shall be submitted to the Commission together with the REIT Plan and the registration statement, and shall be available at the principal office of the REIT and the Fund Manager during regular office hours, for inspection by any shareholder of record of the REIT. Upon request, a copy of the written agreement shall be furnished such shareholder of record, and the cost of reproduction shall be at his own expense. 

SEC. 5. Degree of Care and Diligence. The Fund Manager shall observe the care and diligence required under these Rules, as follows: 

5.1 The Fund Manager shall administer and manage the assets of the REIT with the skill care, prudence and diligence necessary under the circumstances then prevailing that a prudent man, acting in the same capacity and familiar with such matters, would exercise in the conduct of an enterprise of a like character and similar aims. 

5.2 The Fund Manager shall have reasonable and adequate basis for preparing the investment recommendation. 

5.3 The Fund Manager shall establish, maintain and implement written policies and procedures that ensure “best execution” of trades. To show proof of best execution, the Fund Manager shall maintain records or quotes from two (2) alternate providers, whenever applicable, or data from any reputable source that can best provide a basis for the asset’s fair value. Such records shall be made available to the Commission upon request. 

5.4 Funds or properties of a REIT managed by a Fund Manager shall not be commingled with the funds of other clients. 

5.5 The Fund Manager may only outsource activities confined to backroom/accounting and securities custodianship arrangements. 

5.6 When required under the Rules, the Fund Manager shall obtain the required approval for specific transactions prior to its implementation. 

5.7 The Fund Manager shall provide the REIT with full and accurate information in order to make an informed investment decision when approving a transaction or investment recommendation. 

The Fund Manager shall promptly transmit/relay to investors all material facts necessary for them to protect their interest with the knowledge of or reasonably discoverable by the Fund Manager, particularly, information that could enable clients to make well-informed decisions. 

SEC. 6. Conflict of Interest. 

6.1  Where a Fund Manager has a material interest in a transaction with or for the REIT, or a relationship which gives rise to an actual or potential conflict of interest in relation to such transaction, it shall neither advise, nor deal in relation to the transaction unless it has disclosed in writing that material interest or conflict to the REIT and has taken all reasonable steps to ensure fair treatment of the REIT. 

It shall establish, maintain and implement written policies and procedures on conflict of interest, particularly to identify and deal with conflicts of interest situations. 

6.2  The Fund Manager shall establish, maintain and implement written policies and procedures to ensure that its research is independent and impartial in order to provide a reasonable and adequate basis for making investment decisions and taking investment action. 

SEC. 7. Lending and Investment Disposition. 

7.1 Management of the Funds. Assets received by the Fund Manager shall be administered in accordance with the terms of the written instrument signed by the parties. 

7.2 Investment Strategy. Prior to making any investment recommendations or carrying out any transactions for or on behalf of the REIT, the Fund Manager shall establish and understand the investment objectives, instructions, risk profile and investment restrictions of the REIT. For this purpose, the REIT shall, on an annual basis, prepare a three (3)-year investment strategy consistent with the REIT Plan covering, among others, intended purchases and divestments of real and other properties. The REIT shall submit the investment strategy for the succeeding years to the Fund Manager in October of each year. 

7.3 Discretionary Powers. When the Fund Manager is granted discretionary powers in the investment disposition of REIT funds, and unless otherwise specifically enumerated in the agreement or indenture and directed in writing by the REIT, court of competent jurisdiction or other competent authority, loans and investments of the fund shall be limited to: 

• a. Evidence of indebtedness of the Republic of the Philippines and any other evidence of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines; and 

• b. Loans fully guaranteed by the Republic of the Philippines as to the payment of principal and interest.

• The specific directives required under this subsection shall consist of the following: (i) the transaction to be entered into; (ii) the party’s name; (iii) amount involved; and (iv) collateral, if any. 

7.4 Transactions Requiring Prior Authority. In addition to requirements of Related Party Transactions as provided in these Rules, a Fund Manager shall not undertake any of the following transactions for the account of the REIT, unless prior to its execution, such transaction has been fully disclosed and specifically authorized in writing or by official electronic correspondence by the REIT, court of competent jurisdiction or other competent authority: 

• a. Lend, sell, transfer or assign money or property to any of the departments, directors, officers, stockholders or employees of the Fund Manager or their relatives within the first degree of consanguinity or affinity, or to the related interest of such directors, officers and stockholders, or to any corporation where the Fund Manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right as Fund Manager or in a representative capacity or to any corporation which owns at least fifty percent (50%) of the subscribed capital or voting stock of the Fund Manager; 

• b. Purchase or acquire property or debt instruments from any of the departments, directors, officers, stockholders, or employees of the Fund Manager, or their relatives within the first degree of consanguinity or affinity, or to the related interest of such directors, officers and stockholders, or from any corporation where the Fund Manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity or to any corporation which owns at least fifty percent (50%) of the subscribed capital or voting stock of the Fund Manager; 

• c. Invest in equities of, or in securities underwritten by, the Fund Manager or a corporation in which the Fund Manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right or to any corporation which owns at least fifty percent (50%) of the subscribed capital or voting stock of the Fund Manager; 

• d. Sell, transfer, assign, or lend money or property from one managed fund to another, except when the investment is in evidence of indebtedness of the Republic of the Philippines or loans fully guaranteed by the Republic of the Philippines as to the payment of principal and interest. 

The disclosure required by this subsection shall consist of the following minimum information: (i) the transactions to be entered into; (ii) identities of the parties involved in the transactions and their relationships; (iii) amount involved; and (iv) collateral securities, if any. 

7.5 Funds Awaiting Investments or Distribution. Funds held by the Fund Manager awaiting investment or distribution shall not be held uninvested or undistributed any longer than is reasonable for the proper management of the account. 

7.6 Order Allocation. 

• a. The Fund Manager shall establish, maintain and implement policies and procedures to ensure fair and equitable allocation of orders among its clients, including the REIT.

• b. The Fund Manager shall ensure that the amount of commission or management fee earned from any particular client or transaction shall not be the determining factor in the allocation of orders. 

• c. Where the Fund Manager undertakes proprietary trading, the Fund Manager shall, in its agreement with the REIT, disclose to the REIT the method of selection and determination of securities transacted for the proprietary accounts and clients’ accounts. The Fund Manager shall ensure that trades are not directed to benefit its proprietary accounts or any preferential clients and, for this purpose, shall establish information barriers or firewalls, closely supervise internal communication to prevent flow of information and maintain the confidentiality of pending transactions and the holdings of the REIT. Proprietary orders shall be conducted through a separate licensed representative of the Fund Manager who shall not be managing the REIT’s funds. 

• d. Where the Fund Manager is part of a group of companies, which undertake other financial or real estate/property activities, the Fund Manager shall ensure that there is an effective system of functional barriers (firewalls) in place to prevent the flow of information that may be price sensitive or material and non- public, between the different areas of operations. 

• e. The Fund Manager shall establish, maintain and implement written policies and procedures to ensure that the interest of Related Parties shall not supersede the interests of the REIT. The Fund Manager shall disclose such policies to the REIT. 

SEC. 8. Prohibition on Insider Trading/Misuse of Information 

8.1  The Fund Manager shall not effect or cause to be effected any transaction based on material non-public or price sensitive information, or where prohibited from dealing by statutory restrictions on insider trading. 

8.2  The Fund Manager shall establish, maintain and implement written policies and procedures to prevent the misuse of material non-public or price sensitive information relating to the REIT by persons having access to such information. The Fund Manager shall ensure that persons having access to such information are aware of such restrictions. 

8.3  The Fund Manager shall disclose all interests in securities as required by all applicable statutory requirements and shall ensure that its staff is aware of such requirements. 

SEC. 9. Confidentiality of Information.

9.1 The Fund Manager shall establish, maintain and implement written policies and procedures to ensure confidentiality of information relating to the funds and properties of the REIT. 

9.2 Any information relating to the funds or properties of the REIT shall not be disclosed to a third party or an unauthorized person, unless there is a legal or regulatory requirement to disclose such information. 

SEC. 10. Reports. The Fund Manager shall submit the following reports: 

10.1 The three (3)- year investment strategy prepared by the REIT, which shall be due for submission to the Commission and the relevant Exchange on or before December of every year. 

10.2 Quarterly written report on the performance of the REIT’s funds and properties, and of the appropriate benchmarks shall be submitted to the REIT, the Commission, the BIR and the relevant Exchange within forty (45) days after the end of each quarter. 

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