[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 4 – Real Estate Investment Trust 

SEC. 1. Investment in the REIT. 

1.1  Investment in a REIT shall be by way of subscription to or purchase of shares of stock of the REIT. 

1.2  A REIT may provide in its Articles of Incorporation different classes of shares of stock enumerating therein their respective features. 

1.3  No shares of stock of the REIT shall be offered for subscription or sale to Public Shareholders except in accordance with a REIT Plan registered with and approved by the Commission. The REIT Plan shall take the place of a prospectus. It shall contain the following information: 

a. investment policy, restrictions and strategy of the REIT; 

b. discussion on the business plan for property investment and management covering the scope and type of investments made or intended to be made by the REIT, including the type(s) of real estate (e.g. leisure, residential, commercial, or industrial); 

c. general character and competitive conditions of all real estate now held or intended to be acquired by the REIT and how such real estate meets the established criteria for selection; 

d. nature and risks of making property investments in each of the relevant locations, including: 

• i. demographics;

• ii. state of the economy, economic risks and foreign exchange risk; 

• iii. political risks; 

• iv. legal risks and tax considerations; 

• v. policies that affect property investments and property sales; 

• vi. overview of the property market; 

• vii. analysis of the specific property sector and the competitive dynamics in the rental market; 

• viii. operational requirement; and 

• ix. rules and regulations governing property ownership and tenancy matters; 

e. terms and conditions of the arrangements or agreements that have been entered into by the REIT for it to own legal and beneficial title over specific property, and the benefits and risks of such arrangements including but not limited to, any agrarian-related issues, if any; 

f. transaction history of the relevant property in the three (3) years immediately preceding the date of the valuation report included in the REIT Plan; 

g. any proposed program with timetable for renovation or improvement to the real estate, including the estimated costs thereof and the method of financing to be used; 

h. the operating date of each of the real estate, including the occupancy rate, number of tenants and its mix in terms of occupation or business, principal provisions of the leases, average annual rental per square meter, and schedule of lease expirations for the next three (3) years; 

i. the borrowing policy and the method or proposed method of operating and financing the real estate investments of the REIT; 

j. where real estate to be acquired are to be financed (wholly or in part) through borrowings, details of the borrowings must be disclosed including, but not limited to, the source, type, term/period and nature of the borrowings and the interest rate to be paid by the REIT and the risks involved with respect to borrowings; 

k. the measures in place to mitigate or minimize risks relating to the investment and management of real estate owned by the REIT; 

l. the dividend policy; 

m. the insurance arrangement for the assets of the REIT; 

n. the exit strategy in the event of divestment (including the exit from any joint ownership arrangement), factors and risks which may impact or act as an impediment to an exit, and the contingency plan; 

o. details of transactions or agreements entered into with related parties; 

p. full particulars of the nature and extent of the interest, if any, of any director of the REIT, the Fund Manager, the Property Manager or any Related Parties to the REIT, in the property owned or proposed to be acquired by the REIT; and where the interest of such a director consists in being a partner in a firm, the nature and extent of the interest in the firm, with a statement of all sums paid or agreed to be paid to him or the firm for services rendered to the REIT; 

q. functions, duties and responsibilities of the Property Manager and the Fund Manager and, where applicable, shareholding of the Property Manager and/or the Fund Manager in the REIT; 

r. corporate information on the Property Manager, including number of years in real estate/property management or alternatively, information on two (2) responsible officers who have at least five (5) years track record in real estate/property management, total assets under management, staff strength, resources, internal controls and risk management system; 

s. information on the directors and Principal Officers of the Property Manager, highlighting the academic and/or professional qualification as well as experience possessed by the respective personnel; 

t. corporate information on the Fund Manager, including number of years in fund management, total assets under management, staff strength, internal controls and risk management system; 

u. information on the directors and Principal Officers of the Fund Manager, highlighting the academic and/or professional qualification as well as experience possessed by the respective personnel; 

v. details on substantial fees to be paid by the REIT, such as property management fees and fund management fees. The fees paid to the Property Manager and the Fund Manager must be clearly stated and shall include: (i) the percentage rate to be paid by the REIT; (ii) the basis on which the property management fee is calculated; and (iii) an illustration on how the fee is calculated; 

w. names, designation and the direct and indirect shareholdings in the REIT of Promoters, Principal Shareholders, directors, Principal Officers and principal officers of the Property Manager and the Fund Manager; 

x. disclosure on how the proceeds of the public offering and any other funds raised in connection with the public offering will be utilized with timetable; and 

y. pro-forma financial statements which shall include information on Net Asset Value and Net Asset Value per share before listing and after the proposed public offering. 

1.4 In order to be valid, any material amendment to the REIT Plan shall be approved by the Commission. Any amendment to the Plan shall be effective only upon compliance with the requirements relative to said amendment/s. 

SEC. 2. Registration and Listing. The shares of stock of the REIT shall be registered with the Commission in accordance with the SRC and listed in accordance with the rules of the Exchange. 

SEC. 3. Nationality Requirement. A REIT that owns land located in the Philippines must comply with foreign ownership limitations imposed under Philippine law. 

Sec. 4. Dividend Distribution. A REIT shall distribute annually, a total of at least ninety percent (90%) of its Distributable Income as dividends to its shareholders, not be later than the last working day of the fifth (5 ) month following the close of the fiscal year of the REIT subject to the following: 

a. The dividends shall be payable only from the unrestricted retained earnings of the REIT as provided for under Section 42 of the Revised Corporation Code. However, the retained earnings of the REIT may only be restricted and not available for distribution under the circumstances enumerated under Section 42 of the Revised Corporation Code and when 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; provided finally, once the purpose of the restriction is accomplished, the REIT shall immediately cancel the restriction and distribute the corresponding retained earnings upon majority vote of the members of the board of directors. 

b. The percentage of dividends with respect to any class of stock to be received by the Public Shareholders to the total dividends with respect to that class of stock distributed by the REIT from out of its Distributable Income must not be less than such percentage of their aggregate ownership of the total outstanding shares of the REIT with respect to that class of stock. Any structure, arrangement or provision which would have the effect of diminishing or circumventing in any form this entitlement to dividends shall be void and of no force and effect. 

c. The income distributable as dividend by the REIT shall be based on the audited financial statements for the recently completed fiscal year prior to the prescribed distribution. The audited financial statements of the REIT shall present a computation of its distributable dividend taking into consideration requirements under the provisions of the Act and this Rule. However, the audited financial statements shall not be required before the REIT can distribute quarterly and/or semi-annual dividends; provided, the REIT has reasonable grounds to believe that the maximum dividends that it may distribute in such fiscal year shall not be more than its Distributable Income based on its audited financial statements for such fiscal year, as provided above. 

d. A REIT may declare either cash, property or stock dividends. Provided that, in addition to the requirements of the Revised Corporation Code, the declaration of stock dividends must be 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 and subject to the approval of the Commission within five (5) working days from receipt of the request for approval. If the Commission does not act on said request within such period, the same shall be deemed approved. 

e. Distributable Income excludes proceeds from the sale of REIT’s assets that are re-invested by the REIT within one (1) year from the date of the sale. Gain from the said sale shall, however, form part of the distributable income. 

f. The income distributable by the REIT shall be adjusted by deducting the following unrealized or non-actual gains and losses: 

• i. Unrealized foreign exchange gains, except those attributable to cash and cash equivalents;

• ii. Fair value adjustment or the gains arising from marked-to-market valuation which are not yet realized;

• iii. Fair value adjustment of investment property resulting to gain; 

• iv. The amount of recognized deferred tax asset that reduced the amount of income tax expense and increased the net income and retained earnings, until realized; 

• v. Adjustment due to a deviation from any of the prescribed accounting standard which results to gain; 

• vi. Other unrealized gains or adjustments to the income as a result of certain transactions accounted for under the Philippine Financial Reporting Standards.

g. Non-actual expenses / losses that are allowed to be added back to distributable income shall be limited to the following items: 

• i. Depreciation on revaluation increment (after tax); 

• ii. Adjustment due to from any of the prescribed accounting standard which results to a loss; 

• iii. Loss on fair value adjustment of investment property (after tax). 

SEC. 5. Requirements. The REIT shall comply with the following requirements: 

5.1 Body Corporate. 

a. Minimum Public Ownership. A REIT shall be a public company and to be considered as such, a REIT shall: (a) maintain its status as a listed company; and (b) upon and after listing, have at least one thousand (1,000) Public Shareholders each owning at least fifty (50) shares of any class of shares, and who, in aggregate, own at least one-third (1/3) of the outstanding capital stock of the REIT. 

A REIT may, from the time of incorporation, issue shares to, or record the transfer of all its shares into the name of shareholders, investors or, securities intermediary in the form of uncertificated shares. It shall engage the services of a duly licensed transfer agent to monitor subsequent transfers of the shares. Said registrar shall ensure that the shares are traceable to the names of the shareholders or investors and for their own benefit and not for the benefit of any of the non-public shareholders. 

The shares may be registered under a nominee and the nominee shall make available to the transfer agent the names of the shareholders in such frequency as may be necessary for the transfer agent to perform its basic functions. 

Compliance with the minimum public ownership requirement under this section shall be duly certified by the transfer agent upon listing, as of record date for any dividend declaration or any corporate action requiring shareholder approval and other relevant times as may be required by the Commission. 

b. Capitalization. A REIT shall have a minimum paid-up capital of Three Hundred Million Pesos (Php300,000,000.00) at the time of incorporation which can either be in cash and/or property. 

c. Independent Directors. At least one-third (1/3] or at least two (2), whichever is higher, of the board of directors of a REIT shall be independent directors. 

d. Organization and Governance. As a public company, the REIT shall have such organization and governance structure that is consistent with the Revised Code of Corporate Governance and pertinent provisions of the SRC and its IRR. The REIT shall hold such meetings as provided for in its Constitutive Documents pursuant to the Revised Corporation Code. 

e. Reinvestment in the Philippines. In line with the policy to promote the development of the capital market and Filipino participation in the real estate industry, democratize wealth by broadening the participation of Filipinos in the ownership of real estate in the Philippines, use the capital market as an instrument to help finance and develop infrastructure projects in the Philippines, reinvestment in the Philippines shall be an indispensable requisite for any Sponsor/Promoter who contributes income-generating Real Estate to a REIT. 

The relevant listing rules shall be issued which primarily requires the submission of a Reinvestment Plan with a firm undertaking to reinvest (a) any proceeds realized by the Sponsor/Promoter from the sale of REIT shares or other securities issued in exchange for income-generating Real Estate transferred to the REIT and (b) any money raised by the Sponsor/Promoter from the sale of any of its income-generating Real Estate to the REIT, in any Real Estate, including any redevelopment thereof, and/or Infrastructure Projects in the Philippines. This reinvestment shall be made within one (1) year from the date of receipt of proceeds or money by the Sponsor/Promoter. 

The exchange shall furnish the Commission and the Department of Finance with a copy of the Reinvestment Plan in no more than three (3) days from receipt thereof. The Commission shall furnish the Department of Finance all REIT-related reports within fifteen (15) days from due date of submission of quarterly reports by the REIT. 

The exchange shall also adopt in its rules the appropriate mechanism, internal controls, and procedures to include, among others, requiring the Sponsor/Promoter to be a party to the Listing Agreement and prescribing reporting requirements to monitor the REIT. 

5.2 Executive Compensation. The total annual compensation of all directors and Principal Officers of the REIT shall not exceed ten percent (10%) of the net income before regular corporate income tax of the REIT during the immediately preceding taxable year, and shall be governed by the disclosure requirements of PAS 24. 

5.3 Fund Manager and Property Manager Fees. The REIT shall engage a Fund Manager and a Property Manager in accordance with these Rules. The fees received by the Fund Manager and the Property Manager from the REIT shall not exceed one percent (1%) of the Net Asset Value of the assets under their respective management. 

SEC. 6. Functions of the REIT. Unless otherwise stated in these Rules, the REIT shall have all of the powers of a corporation under the Revised Corporation Code, and shall perform all of the functions of a corporation, except those expressly delegated under these Rules to the Fund Manager and to the Property Manager, and those that are necessary such as but not limited to the following: 

a. appoint a Fund Manager, a Property Manager and a Property Valuer; 

b. ensure that the financial and economic aspects of the REIT are professionally managed in the interest of the shareholders and creditors; 

c. formulate the annual investment strategy and policy of the REIT in accordance with the REIT Plan; 

d. determine the annual borrowing limit of the REIT, in accordance with the REIT Plan; 

e. determine the acquisition and disposition plan of real estate properties in accordance with the investment objective indicated in the REIT Plan; 

f. implement appropriate policies and conduct due diligence reviews such that investments are made only after careful and diligent investigations by the REIT;

g. formulate dividend payment schedules of the REIT; 

h. maintain or cause to be maintained proper books and records of the REIT and cause the preparation of the REIT’s financial statements; 

i. ensure that all documents in relation to the REIT (excluding documents containing commercially sensitive information) are made available for inspection by the shareholders and creditors of the REIT in the Philippines, during normal office hours, at the place of business of the REIT and ensure that copies of such documents are available upon request by any shareholder or creditor upon payment of a reasonable fee; 

j. ensure compliance with any applicable laws, rules, codes or guidelines issued by governmental departments, regulatory bodies, exchanges or any other relevant organizations regarding the activities of the REIT or its administration; and 

k. maintain and implement investor relations procedures whether online or otherwise to handle queries and complaints.

In no case shall the REIT perform quasi-banking functions without the requisite license issued by the BSP. 

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