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Business

Ray of sunshine

HIDDEN AGENDA - Mary Ann LL. Reyes - The Philippine Star

Just recently, the Philippine Stock Exchange revealed that four local property firms are planning to offer real estate investment trusts or REITs this year.

This is a ray of sunshine which our economy badly needs as it tries to recover from the adverse impact of the COVID-19 pandemic.

In addition, three other companies are going public, which again is good news considering that the local stock market only had seven initial public offerings or IPOs in the last three years.

It is expected that one of the four firms will be DoubleDragon Properties Corp. which last year revealed that it planned to raise as much as P14.7 billion through a REIT.

Last November, DoubleDragon, in its filing with the SEC, said that its real estate investment trust DDMP REIT Inc. will be offering up to 6.3 billion shares, all of which are secondary shares owned by Double Dragon, and Benedicto and Teresita Yujuico. Target offering period is Feb. 10 to 17, 2021.

Its property portfolio consists of three commercial properties comprising six office towers with retail components in DD Meridian Park, which is the company’s flagship project in Metro Manila. The three properties are DoubleDragon Plaza, DoubleDragon Center East and DoubleDragon Center West.

Meanwhile, Robinsons Land Corp. (RLC) earlier revealed that it was forming a REIT for some of its existing office buildings to create further opportunities for growth. The property developer has around 25 office buildings in its portfolio.

The third might be Vista Land and Lifescapes which late last year said it was considering the possibility of launching a REIT IPO in 2021. But it said then that the plan is subject to favorable market conditions and other commercial and legal considerations.

PSE president and chief executive officer Ramon Monzon believes that restoring investor confidence will continue to be a challenge given the unpredictability of the COVID-19 situation which has rendered the current economic environment fragile, but he remains optimistic that a recovery will be forthcoming.

To attract more companies, Monzon said that the bourse will relax listing rules this year and will offer new features such as short-selling, added sector classifications and indexes, and a data analytics platform.

Last year, the SEC approved Ayala Land’s application to list the country’s first REIT. AREIT, the trust created by Ayala Land, has in its portfolio of properties the 24-story Solaris One, Ayala North Exchange, and the McKinley Exchange, as well as the Teleperformance office building in Cebu and The 30th mall in Pasig.

AREIT concluded its P12.3-billion initial public offering in August last year amid the volatile trading environment due to the pandemic. And according to Ayala Land, the offering was well-received by the market and was two times oversubscribed.

And last December, AREIT said it will expand its business by pursuing high-yielding prime commercial properties over the next three years. It emphasized in its three-year investment strategy that it was interested in income-generating properties, mostly commercial leasing, in prime areas and business districts in Metro Manila or key provinces.

It also pointed out that with the identified assets for acquisition in 2021, the office sector will continue to drive AREIT’s income contributing 89 percent of its revenues this year.

Republic Act 9856 or the REIT Act defines a REIT as a stock corporation which is established principally for the purpose of owning income-generating real estate assets. It is required by law to distribute annually at least 90 percent of its distributable income (unrestricted retained earnings) as dividends to its shareholders, that it must be a public company with a minimum paid-up capital of P300 million, that may invest not more than five percent of its investible funds in synthetic investment products, that at least 75 percent of the deposited property of the REIT must be invested in or consist of income-generating real estate, that the election or appointment of directors and officers (including fund and property managers) be subject to the fit and proper rule, among others.

Last year, the Securities and Exchange Commission issued the revised implementing rules and regulations of the REIT Act, which, among others, reduced the minimum public ownership requirement of a REIT to at least one-third of the outstanding capital. Previously, the requirement was 40 percent for the initial year which will increase to 67 percent within three years from listing.

Also in 2020, the Bureau of Internal Revenue clarified the contentious tax issued that delayed the law’s implementation. The new BIR rules now exempt transfer of real or personal property to the REIT from the value-added tax, and removed the requirement for a REIT to place in escrow, in favor of the bureau, the income tax collectible from the REIT on dividends declared and deducted from its taxable income, as well as the 50 percent documentary stamp tax on the transfer of real property to the REIT.

Should we invest in REITs?

If we want to become part-owner of shopping malls, hotels, residential and commercial buildings but do not have the capital to invest directly in these properties, then the answer is yes.

The best part of course is that REIT investors receive a steady flow of income by way of dividends, which REITs are required to declare every year, at a rate of 90 percent of unrestricted retained earnings.

Ayala Land’s REIT, as well as the other companies that are planning to go the REIT route, are big names in the real estate industry and have proven their reliability and income-generating capacities through the years. Let’s just say, your money will definitely be in good hands.

For comments, e-mail at mareyes@philstarmedia.com

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