ALLOWABLE INVESTMENTS OF REAL ESTATE INVESTMENT TRUST (REIT)

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Published — May 23, 2021

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

Read also: FUNCTIONS OF REAL ESTATE INVESTMENT TRUST (REIT)

• A REIT may invest in real estate located in the Philippines.

• A REIT may invest in real estate-related assets and evidence of indebtedness of the Republic of the Philippines.

• A REIT may invest in cash and cash equivalent items.

What are the allowable investments for the REIT?

Implementing Rules and Regulations of the Real Estate Investment Trust (REIT) Act of 2009 (R.A.  No.  9856) 

A REIT may only invest in: 

1. Real estate
   1. 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      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.
   2. 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 Securities and Exchange Commission (Commission). The Commission in issuing such authority shall consider, among others, satisfactory proof that the valuation of assets is fair and reasonable.
   3. 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 the Rules.
   4. Acquisition of a real estate shall include the ownership of all rights, interests and benefits related to the ownership of the real estate.
   5. The real estate to be acquired by the REIT should have a good track record for three 3 years from date of acquisition.
2. Real estate-related assets, wherever the issuers, assets, or securities are incorporated, located, issued, or traded.
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. 
4. Bonds and other evidence of indebtedness issued by:
   1. 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
   2. supranationals (or international organizations whose membership transcends national boundaries or interests, e.g. International Bank for Reconstruction   and Development, Asian Development Bank). 
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.
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.
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.
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. 
9. Cash and Cash Equivalent Items.
10. Collective investment schemes  duly  registered  with   the  Commission   or   organized   pursuant  to  the  rules  and  regulations   of  the  Bangko Sentral ng Pilipinas (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   
11. Offshore mutual funds with ratings acceptable to the Commission.
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:
    1. Investment Property;
    2. Financial Assets;
    3. Investments in Associates;
    4. Investments in Subsidiaries;
    5. Interests in Joint Ventures;
    6. Non-current Assets Held for Sale and Discontinued Operations;
    7. Leases.
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  Commission;   and  (v) the  use  of  Synthetic  Investment  Products  shall  be  disclosed  in the  REIT  Plan  and under  special  authority  from  the 

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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