THE PHILIPPINE STOCK EXCHANGE, Inc. (PSE) is moving to tighten rules for Real Estate Investment Trusts (REIT), as it wants to ensure that funds invested in such instruments will not be used for projects abroad.
In a memorandum posted on its Web site last Friday, the PSE proposed to amend Section 4E of the Listing Rules for REITS released in 2010, which outlined the general criteria of companies to qualify for listing.
The amendment states that “a REIT shall not invest in real estate located outside the Philippines without special authority from the Securities and Exchange Commission.”
The corporate regulator earlier identified reinvestment of such funds in the country as a key concern for REIT guidelines that has been raised by the Department of Finance and Bureau of Internal Revenue.
In addition to being reinvested in the Philippines, proceeds from share offerings of REITs must be spent within five years, according to Section 8 of the proposed amendments, titled “Reinvestments.”
The previous listing rules did not impose such limits on the use of proceeds.
The exchange, however, may grant a longer period of investment depending on the nature and magnitude of the project involved.
The PSE also proposed to add Section 6.3, under which REITs will have to disclose via the PSE Electronic Disclosure Generation Technology (EDGE) an annual report on how the proceeds of a secondary share offering have been used.
“The annual report shall be submitted within 30 days following the end of the REIT’s fiscal year and shall be certified by the company’s chief financial officer or treasurer and external auditor. The annual reports shall be regularly submitted until the proceeds have been fully utilized.”
On Continuing Listing Requirements under Section 7 of the proposed listing rules, the PSE wants to remove the statement that the minimum public ownership (MPO) of the exchange shall not apply to REITs. Instead, REITS must comply with the MPO rule indicated under the Implementing Rules and Regulations (IRR) of Republic Act No. 9856, otherwise known as the REIT Act of 2009. Section 8.1 of the IRR states that a REIT must have a public ownership of at least one-third of its outstanding capital stock, owned by at least 1,000 public shareholders, with each owning a minimum of 50 shares. Should REITs fall below the MPO requirement, they will be subjected to a trading suspension of up to six months. In that time they must work on meeting the requirement.
REITs that fail to comply with the REIT law, its IRR and other guidelines set by the PSE will be subjected to the same penalties under PSE rules, including delisting.
The PSE further added a section on relisting prohibition which states that a REIT that has been involuntarily delisted “cannot apply for relisting within a period of five years from the time it was delisted.”
Directors and officers of the delisted firm are also disqualified from becoming directors and officers in other REITs for the same period.
The PSE is accepting comments for the proposed guidelines until March 31. — Arra B. Francia