REAL ESTATE INVESTMENT TRUST (REIT)

1. REPUBLIC ACT NO. 9856 –

1. The Real Estate Investment Trust Act (REITA) of 2009
2. The Act Providing the Legal Framework for Real Estate Investment Trust

2. DECLARED STATE POLICIES

1. To promote the development of the capital market
2. Democratize wealth by broadening the participation of Filipinos in the ownership of real
estate in the Philippines
3. Use the capital market as an instrument to help finance and develop infrastructure projects,
and protect the investing public

3. ADVISER – refers to a lawyer, accountant, auditor, financial or business consultant, and other
persons rendering professional advisory services to the REIT.

4. ASSOCIATE AND ASSOCIATE OF A PERSON – refers to any relative of the person within the 4th
degree of consanguinity or affinity and any company in which he/she and his/her relative within
the 4th degree of consanguinity or affinity directly or indirectly have an interest of 25% or more.

5. AFFILIATE OF THE REIT – refers to a corporation that directly or indirectly through one or
more intermediaries is controlled by or is under the common control of another corporation which
thereby becomes its parent corporation.

6. DEPOSITED PROPERTY – refers to the total value of the REIT’s assets reflecting the fair market
value of total assets held by the REIT.

7. EXCHANGE – any entity registered with the SEC as a stock exchange pursuant to the Securities
Regulation Code.

8. FUND MANAGER – the person engaged by the REIT to perform certain functions.

9. CASH EQUIVALENT ITEMS – means instruments or investments that are highly liquid and
marketable and are considered good as cash that has passed the accreditation process of the Fund
Manager.

10. INCOME GENERATING REAL ESTATE – refers to real property which is held for the purpose of
generating a regular stream of income like: rentals, toll fees, user’s fees, ticket sales, parking fees
and storage fees.

11. INDEPENDENT DIRECTOR – a director who has the qualifications and none of the
disqualifications of an independent director.

12. INVESTIBLE FUNDS – funds of the REIT that can be placed in investment vehicles other than
income-generating real estate.
13. INVESTOR – the owner of investor securities.
14. INVESTOR SECURITIES – shares of stock issued by a REIT or derivatives thereof.
15. MANAGED FUND – any arrangement where funds are solicited from the investing public and
pooled purposely for investing in securities duly registered and/or approved by the appropriate
government regulatory agency for investment and/or reinvestment by the RE IT.
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16. CONSTITUTIVE DOCUMENTS – means the Articles of Incorporation and By-Laws of a REIT.

17. OVERSEAS FILIPINO INVESTOR – an individual citizen of the Philippines who is working
abroad including one who retained or re- acquired his/her Philippine citizenship under RA#9225 –
Citizenship Retention and Re-acquisition Act of 2003.

18. MATERIAL CONTRACT – agreement or arrangement

1. Where the amount involved is at least five percent (5%) of the Deposited Property of the
REIT or
2. Which is not entered into the ordinary course of business of the REIT
3. The following shall be deemed a Material Contract regardless of the amount:
❖ Related party transactions like:
• Agreements between the REIT and Fund Manager
• Agreements between the REIT and Property Manager
• Agreements between and among shareholders relating to the transferability of the
shares of stock of the REIT, control of the REIT and voting rights over shares of
stock of the REIT such as: voting trust agreements, pooling agreements, joint
venture agreements, option agreements and agreements granting rights of first
refusal or conversion rights
❖ Any acquisition or disposition of real estate by the REIT
❖ Contracts relating to investments of the REIT
❖ Any contract creating mortgages, encumbrances, liens or rights on the real estate of the
REIT
❖ Contract of any nature that limits the declaration or distribution of dividends by the
REIT
❖ Any contract relating to joint venture, spin off, consolidation or merger, take-over or
change in Control involving the REIT
❖ Any contract that may be expected to materially affect the market activity and/or the
price of the Investor Securities

19. NET ASSET VALUE (NAV) – the adjusted net asset value reflecting the FMV of total assets and
investible funds held by the REIT less (-) total liabilities. NAV per share shall be computed by
dividing NAV by the total outstanding shares of the REIT.

20. PARENT – a corporation which has control over another corporation either directly or
indirectly through one or more intermediaries.

21. PRINCIPAL OFFICER – refers to the Chairman of the board of directors, President, Chief
Executive Officer (CEO), Chief Operating Officer (COO), Treasurer, Chief Financial Officer (CFO),
Corporate Secretary, Vice President (VP), Executive Vice President (EVP), Senior Vice President
(SVP), Compliance Officer, Chief Accounting Officer, Chief Investment Officer and other with their
equivalent positions including Consultants with similar rank or position.

22. CONTROL
1. Exist or occur in favor of a parent corporation when it has the power to direct or govern the
financial and operating policies of an enterprise to obtain benefits from its activities
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2. Is presumed to exist when the parent owns either directly or indirectly through subsidiaries
more than 1⁄2 of the voting power of an enterprise unless it can clearly be demonstrated
that such ownership does not constitute control
3. Also exist even when the parent owns 1⁄2 or less of the voting power of an enterprise when
there is power:
• Over more than 1⁄2 of the voting rights by virtue of an agreement with investors
• To direct or govern the financial and operating policies of the enterprises under a
statute or an agreement
• To appoint or remove the majority of the members of the board of directors or
equivalent governing body

23. NET INCOME – refers to the net income as determined under the Philippine Financial
Reporting Standards (PFRS).

24. PROPERTY VALUER – an independent entity engaged by a REIT to value its real estate.

25. PROPERTY MANAGER – a professional administrator of real properties engaged by the REIT to
provide the property management services.

26. PRINCIPAL STOCKHOLDER – a stockholder who is the beneficial owner of more than 10% of
any class of investor securities of the REIT directly or indirectly.

27. PUBLIC SHAREHOLDER – a shareholder of a REIT other than the non-public shareholders.

28. SPONSOR/PROMOTER – any person who contributes cash or property in establishing a REIT,
either acting alone or in conjunction with one or more other persons directly or indirectly.
Sponsor/Promoter of the REIT is –
1. A director, Principal Officer or Principal Stockholder of the Sponsor/Promoter of the REIT
2. A director, Principal Officer or Principal Stockholder of the REIT
3. An associate of a director, Principal Officer or Principal Stockholder of the REIT or its
Sponsor/Promoter
4. A related Corporation to the REIT or its Sponsor/Promoter and
5. Any person who holds legal title to the shares of stock of the REIT for the benefit of another
for the purpose of circumventing the provisions of the REIT

29. REIT PLAN – refers to the plan of the REIT including amendments of the REIT registered and
approved by the SEC.

30. REAL ESTATE INVESTMENT TRUST (REIT) –

1. Stock Corporation established in accordance with the Corporation Code and its rule and
regulations principally for the purpose of owing income-generating real estate assets.
2. Shall have a minimum paid-up capital of P300.0M at the time of incorporation either in
cash and/or property.
3. It minimum public ownership.
❖ At least 1,000 public shareholders
❖ Shares of stocks should be publicly listed
❖ Each public shareholders should own at least 50 hectares of any class
 REAL ESTATE INVESTMENT TRUST (REIT)

❖ Public shareholders should have with aggregate ownership of at least 1/3 of the
outstanding capital stock
4. Its investment maybe in.
❖ Shares of stocks
❖ Different classes of stocks
5. The offering of shares of stock should be pursuant to its plan as registered and approved by
the SEC as well as the amendments thereof and should be registered with the SEC in
accordance with the Securities Regulation Code and listed in accordance with the rules of
the Philippines Stock Exchange (PSE).
6. At least one-third (1/3) or at least two (2) of its board of directors shall be independent
directors whichever is higher.
7. It 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 SEC
8. It shall distribute the dividend.
❖ Annually
❖ At least 90% of its Distributable Income
❖ To its shareholders
❖ Not be later than the last working day of the 5th month following the close of the fiscal
year of the REIT
9. It shall engage the services of a Fund Manager and a Property Manager in accordance with
the REIT rules which shall be receiving a fee of not more than one percent (1%) of the Net
Asset Value of the assets under their respective management.
10. It shall not undertake property development activities whether on its own, in a joint
venture with others or by investing in unlisted property development companies, unless.
❖ It intends to hold in fee simple the developed property for at least three (3) years
from date of completion
❖ The purchase agreement of the said property is made subject to the completion of the
building with proper cover for construction risks
❖ The development/construction of real estate shall be carried out on terms which are the
best available for the REIT and which are no less favorable to the REIT than an arm’s
length transaction between independent parties and
❖ The prospects for the real estate upon completion can be reasonably expected to be
favorable.
11. Shall pay a total executive compensation of all its directors and principal officers which
shall not exceed 10% of the Net Income before the regular corporate income tax.
12. The total contract value of its property development activities undertaken and investments
in uncompleted property developments should not exceed ten percent (10%) of its
Deposited Property.
13. The total borrowings and deferred payments should not exceed thirty-five percent
(10%) of its Deposited Property (total assets of the REIT reflective o its FMV); provided.
❖ The total borrowings and deferred payments of a REIT has a publicity disclosed
investment grade credit rating by a duly accredited or internationally recognized rating
agency may exceed 35% but not more than 70% of its Deposited Property
❖ That in no case shall a Fund Manager borrow for the REIT from any of the funds under
its management
14. It shall pay taxes as foll0ws:
 REAL ESTATE INVESTMENT TRUST (REIT)

❖ Income Tax but not on the Minimum Corporate Income Tax (MCIT)
❖ Creditable Withholding Tax of 1%
❖ Tax on Transfer of 50% of the applicable Doc. Stamp Tax
❖ Dividends Paid by the REIT.
❖ VAT on Gross Sales or Gross Receipts of REITs

31. For purposes of clarity, a REIT although designated as a “Trust”, does not have the same
technical meaning as “Trust” under existing laws and regulations but is used for the sole purpose of
adopting the internationally accepted description of the company in accordance with global best
practices.

32. SUBSIDIARY – a corporation more than 50% of the voting stock is owned or controlled by
another corporation (its parent corporation either directly or indirectly through one or more
intermediaries.

33. SYNTHETIC INVESTMENT PRODUCTS – derivatives and other securities created exclusively
from one or more financial instruments to stimulate the returns of the underlying assets or indices
of asset values including warrants, options, interest rate derivatives, currently derivatives, equity
derivatives and credit derivatives such as credit-linked notes, collateralized debt obligations, total
return swaps, credit spread options and credit default options.
1. Taxable Net Income-pertinent items of gross income specified in Section 32, RA#8424 (the
National Internal Revenue Code) less(-) all allowable deductions enumerated in Section 34,
RA#8424less(-) dividends distributed by a REIT out of its Distributable Income as of the
common share and
2. Dividends to owners of the common shares and
3. Dividends to owners of the preferred shares pursuant to their rights and limitations
specified in the Articles in Incorporation of the REIT

34. DISTRIBUTION INCOME – refers to the net income as adjusted for unrealized gains and
losses/expenses and impairment losses and other items in accordance with sale of the REIT’s assets
that are re-invested in the REIT within one (1) year from the date of the sale.
(Formula: Gross Income less (-) Operating Expenses less (-) Extraordinary Loss (+)
Extraordinary Gain=Distribution Income)

35. FUND MANAGER –

1. Shall be appointed by the REIT
2. Independent of the REIT and its promoters or sponsors
3. Registered corporation engage in the business of fund management
4. At least 3 year track record in fund management
5. Minimum paid-up capital of P1.00M which is unimpaired
6. With sufficient human, organizational and technical resources
7. Must have office in the Philippines
8. Its CEO or Trust Officer shall be resident of the Philippines and
9. Its 2 full-time and qualified professional employees shall have track record and experience
in financial management as well as experience in the real estate industry for at least 5 years

36. PAR VALUE – refers to the market value or nominal value which is stated as unit value of the
capital stock.
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37. PROPERTY MANAGER –

1. Shall be appointed by the REIT
2. Independent of the REIT, its promoters or sponsors
3. Considered independent if will comply the Fit and Proper Rule
4. Possess sufficient human, organizational and technical resources
5. Maintain satisfactory internal control and written compliance procedures
6. Sufficient financial resources at its disposal for the conduct of its business effectively and to
meet its liabilities.

38. FIT AND PROPER RULE – means one had passed the prescribed rule determined by SEC or
other regulatory agency on: (Key: Qu-In- ETEC)
1. QUALIFICATIONS
2. INTEGRITY
3. EXPERIENCE
4. TRAINING
5. EDUCATION AND
6. COMPETENCE

39. PROPERTY VALUER –

1. Shall be appointed by the REIT
2. Duly accredited independence Property Valuer
3. Prepares a full valuation of the REIT’s assets at least once a year
4. Shall ensure independence of opinion and valuation
5. Comply the Fit and Proper Rule

40. QUALIFICATIONS OF PROPERTY VALUER.

1. Registered with SEC
2. Certifying Officer shall be a licensed Real Estate Appraiser with PRC
3. Good standing Officer/Member of any registered association of appraisal companies
4. Appraisal company has minimum experience of 5years in appraisal business
5. Rendered profession services for at least one (1) commercial bank and two (2) public
companies
6. Appraisal company or any of its director/officers shall have no adverse judgment on any
administrative, civil or criminal involving appraisal business and
7. Shall have solvent and sound financial condition

41. OBLIGATIONS OF PROPERTY VALUER – shall value all the real estate of the REIT
1. On the basis of full valuation
2. With physical inspection – site
3. Inspection of the buildings and facilities once a year
4. In any event for the purpose of issuance of new Investor Securities and
5. Produce valuation report on real estate to be acquired or sold by the REIT or
6. Where new shares are offered by the REIT or
7. Asrequired by SEC

42. Services of the Property Valuer can be terminated after conduct of valuation of REIT real
estate for 3 consecutive years subject to a curing period of 3 years its services may be re-engage.
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43. Services of the REIT can be terminated by notice in writing in case:

1. It goes into liquidation
2. Bankrupt
3. Has a receiver appointed over its assets
4. Good sufficient reason
5. Violates REIT rules and other relevant laws, rules and regulations
6. Terminated in all other cases as provided in the Constitutive Documents

44. Upon termination/dismissal of the Property Valuer services, the REIT shall point another
Property Valuer immediately.

45. To organize a REIT, the group of investor should have a minimum authorized capital stock of
P4.80B

46. (P300.0M minimum paid-up capital divided by 25% and the result is divided by 25%).

47. The minimum authorized capital stock of a Fund Manager of the REIT is
P1.60B(P100.0Mminimum paid-up capital divided by 25% and the result is divided by 25%)