Interesting developments HIDDEN AGENDA

The real estate investment trust (REIT) arena in the Philippines has just gotten more interesting.

The Gotianun group-led Filinvest Land recently announced that it is transitioning its wholly-owned subsidiary, Cyberzone Properties Inc. (CPI), into a REIT company which will be listed on the Philippine Stock Exchange as required by law and the rules issued by the Securities and Exchange Commission (SEC).

Republic Act 9856, or the REIT Act, defines a REIT as a stock corporation which is established principally for the purpose of owning incomegenerating 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, and to be a public company with a minimum paidup capital of P300 million, among other requirements.

REITs, however, are subject to a number of limitations. For instance, they are only allowed to invest not more than five percent of their 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, and that the election or appointment of directors and officers (including fund and property managers) be subject to the fit and proper rule, to name a few.

A decade after the law was passed, it failed to generate interest among local firms. No REITs were launched due to two major restrictions that developers must face. First of course was the 67 percent required minimum public ownership and second was the 12 percent property transfer tax.

Realizing these, regulators had to rethink things. This resulted in the SEC revising the implementing rules and regulations of the REIT Act last year, 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, increasing to 67 percent within three years from listing.

As to the second restriction, the Bureau of Internal Revenues last year also ruled that transfer of real or personal property to the REIT is exempt from the value-added tax. The BIR also 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.

The first REIT created and listed in the local bourse was AREIT, the trust created by Ayala Land, which concluded its P12.3-billion initial public offering in August last year amid the volatile trading environment due to the pandemic. But even with the uncertainty prevailing at that time, the offering was well-received by the market and was even two times oversubscribed.

Recently, the Philippine Stock Exchange, without identifying the namess, announced that four local property firms are planning to offer REITs this year.

One of those expected to offer a REIT would probably be DoubleDragon Properties Corp. (DDMP), which last year revealed that it planned to raise as much as P14.7 billion through a REIT.

DDMP REIT Inc. will be offering up to 6.3 billion shares, all of which are secondary shares. Target offering period is from Feb. 10 to 17 this year.

DoubleDragon is led by its young and dynamic chairman Edgar “Injap” Sia, and co-chairman Tony Tan Caking who founded Jollibee. Sia started Mang Inasal, a chicken barbecue fast-food restaurant which has captured the hearts of Filipinos through its unli rice offering, grew the business to over a hundred branches, and this did not escape the attention of Caktiong who acquired the company. After two years, Sia and Caktiong formed DoubleDragon.

Second to probably join the REIT fray this year is Robinsons Land Corp., which earlier revealed that it was forming a REIT for some of its existing office buildings to create further opportunities for growth, while the third expected to offer a REIT might be Vista Land and Lifescapes, which late last year said it was considering the possibility of launching a REIT IPO in 2021. Now, we have a fourth name, Filinvest Land. According to Filinvest, a certain number of operating office buildings, including buildings leased out to traditional and multinational BPO companies, will comprise the property portfolio for the REIT company. The office buildings are located in Northgate Cyberzone in Filinvest City, Alabang and Filinvest Cyberzone Cebu in Cebu City.

FLI president and CEO Josephine Gotianun-Yap said that listing subsidiary CPI as a REIT company would unlock the value of their office leasing business and would accelerate the growth of this business line. She added that Filinvest has a growing portfolio of recurring income projects and significant prime office properties in Alabang, Cebu, and Clark to continue to grow this business.

Making a difference

Even in times of distress, one can make a difference. Tough cannot aptly describe the situation pre-need company PhilPlans went through last year.

Pre-need companies, such as PhilPlans, which is the only one in the business that offers education, pension, and memorial plans, and an acknowledged leader in each category, usually invests in various instruments such as bonds, stocks, and real estate – with the proceeds going to planholders in the form of their benefit claims. These are considered safe investments, until COVID-19 came along.

The pandemic took a heavy toll on the economy and financial markets, both equity and fixed income. As a result, PhilPlans found its equity, fixed income, and real estate investments losing value.

Instead of selling its trust fund assets at distressed or fire sale prices, which would deplete its portfolio and compromise its ability to service future maturities, PhilPlans chose what it considered the best option possible. This included closing almost all branches nationwide, retrenching a big portion of its manpower, and temporarily deferring the payment of maturities last year in order to conserve the company’s trust fund. The company also created cash programs to provide planholders an alternative source of funds.

But regardless of the challenges it encountered this year, PhilPlans walked the extra mile to share its blessings with those affected by recent calamities.

Following the spate of typhoons that ravaged the nation together with the pandemic, PhilPlans donated 600 25kg sacks of rice to the Department of Education, as well as 1500 25kg sacks and 250 50kg sacks to the Boy Scouts of the Philippines.

According to PhilPlans chairman Eusebio Tanco, times like this call for corporate citizens to show even a little more compassion and responsibility towards fellow Filipinos in real need.