Beyond buildings: Inside the SEC’s REIT rule reforms

The Real Estate Investment Trust (REIT) market welcomed 2026 with a new stage of development with the issuance of Securities and Exchange Commission (SEC) Memorandum Circular No. 1, Series of 2026, amending the Implementing Rules and Regulations (IRR) of the REIT Act of 2009, or RA 9856. After the regulatory improvements introduced in 2020 which triggered the establishment of the first few REITs in the Philippines, the SEC once again seeks to establish a more robust framework to encourage investment in the REIT market.

The revised rules broadened asset eligibility and ownership structures and introduced reinvestment flexibility for sponsors, with the aim of positioning REITs as a more effective capital-raising platform for both real estate and infrastructure-related investments.

BROADER SCOPE OF INCOME-GENERATING REAL ESTATE
Under the old REIT rules, income-generating real estate was primarily associated with traditional rental properties such as office buildings, malls, and other commercial developments. While the earlier IRR did not expressly disqualify other asset types, the SEC emphasized that income-generating real estate must be physical and tangible in nature and even opined that investments in real estate mortgages are not allowable REIT investments.

The new rules adopted a significantly broader approach. Income-generating real estate now includes assets that produce recurring and predictable cash flows, regardless of whether such income arises from leases or other passive revenue sources. Qualifying assets also include infrastructure and alternative real estate such as toll roads, railways, airports and air navigation facilities, ports, ICT infrastructure, energy infrastructure assets, data centers, parking lots, buildings, malls, warehouses or storage facilities, immovable fixtures, machinery, facilities, and structures, as well as real rights over properties (e.g., usufruct, easements and registered leases). It excluded, however, real properties held primarily for sale or disposition and assets whose income is derived mainly from their sale rather than their continuing use or operation.

This progressive approach deviates from the traditional rental properties and aligns Philippine REITs more closely with neighboring regions and opens the door for infrastructure-backed and hybrid REIT structures.

EXPANDED OWNERSHIP STRUCTURES
Previously, the allowable investments in real estate assumed direct ownership of REIT assets through leasehold or freehold, offering limited guidance on the use of special purpose vehicles (SPVs) or joint ventures. As a result, potential market players became reluctant to set REITs, considering that the public will, in effect, own at least one-third of the income-generating real estate of the REIT.

The amended rules allowed REITs to own income-generating assets directly or indirectly, through unlisted SPVs or incorporated joint ventures, provided the REIT owns at least two-thirds of the outstanding and voting capital stock of the asset-holding entity. Compared with the old regime, this expanded the options for internal asset ownership structure while ensuring that REIT investors retain meaningful control.

However, it appears that the transfer of property to the unlisted SPV or incorporated joint venture does not enjoy the same tax incentives as transfers of property to a REIT, particularly on the 50% reduction in DST and all applicable registration and annotation fees. Nonetheless, dividends declared by the unlisted SPV or incorporated joint venture which are received by the REIT are considered allowable deductions to the taxable net income of the SPV or incorporated joint venture. Note that the requirement of distribution of at least 90% of distributable income also extends to such SPVs or incorporated joint ventures that are wholly or partially owned by a REIT. Failure to do so shall be a violation of the REIT’s dividend distribution obligation.

LONGER REINVESTMENT PERIOD FOR SPONSORS
One of the most practical changes involves the reinvestment requirement for REIT sponsors. Under the 2020 rules, sponsors were required to reinvest listing proceeds within one year.

The amendment extends the reinvestment period to two years and, at the same time, allows reinvestment through equity investments, loans, debt instruments, or debt repayment related to Philippine real estate or infrastructure projects. This change gives sponsors greater capital planning flexibility while preserving the policy objective of channelling REIT proceeds back into the Philippine capital market.

PUBLIC OWNERSHIP AND GOVERNANCE STANDARDS
The amended rules further defined a public shareholder as one who owns less than 10% of the REIT’s outstanding shares and does not exercise substantial influence over management or operations. Ownership of 10% or more — directly or indirectly — creates a presumption of substantial influence. This clarification strengthens investor protection and prevents the dilution of public ownership through affiliated or indirect holdings.

MINIMUM PUBLIC OWNERSHIP COMPLIANCE
In practice, asset infusions by sponsors could inadvertently trigger MPO breaches, especially in the execution of property-for-shares exchanges. During public consultation, the draft circular sought to allow temporary MPO breaches when sponsors inject income-generating assets in exchange for REIT shares, subject to regulatory approval, full disclosure, and a clear plan to restore compliance.

However, this proposed measure did not materialize in the issued circular, resulting in a status quo. Thus, the public float requirement for REITs of one-third of the outstanding common stock must, at all times, be complied with.

In which case, sponsors or their affiliates seeking to infuse property in exchange for shares of the REIT may resort to preparatory steps to ensure compliance with the MPO, considering the value of the property to be infused. This may include the declaration of REIT shares as property dividends by the sponsor to public shareholders, resulting in an increase of public shareholding. The transaction will be subject to DST and final taxes if the recipient is an individual. It may also sell a portion of its REIT shares to increase public float through open trading or pre-arranged sales (block sales) prior to infusion. However, the proceeds of the sale will be subject to reinvestment rules as discussed above, and the transaction will be subject to stock transaction tax, PSE fees, SRC fees, SCCP fees, and commissions to brokers.

The investors and the REIT will ultimately have to conduct a cost-benefit analysis to determine the most cost-efficient approach to the intended structure.

DIVIDEND SAFEGUARDS
The statutory requirement for REITs to distribute at least 90% of distributable income annually remains unchanged and further extended to asset-holding SPVs and incorporated joint ventures. In both cases, the dividends distributed shall be allowed as an additional deduction to the taxable net income of the REIT, SPV, and incorporated joint venture.

TAX AND STRUCTURING IMPLICATIONS
While the circular does not specifically discuss the tax implications of the reforms, the regulatory changes have meaningful tax and structuring implications. The expanded asset definition and formal recognition of SPVs support more tax-efficient structuring in terms of infrastructure and mixed-use assets as well as managing fund flow within the group.

At the same time, the dividend requirement limits the ability to retain earnings at the subsidiary level, requiring careful planning to balance cash flow management, tax timing, and dividend compliance. The extended reinvestment period also allows sponsors to better align taxable events with project timelines and funding needs.

OUTLOOK OF REITS IN THE PHILIPPINES
The expanded eligibility of assets and structuring options make this an opportune moment for developers, infrastructure operators, and sponsors to explore launching a REIT or streamline existing REIT structures. A detailed feasibility and structuring analysis at this stage can position potential and existing market players to take advantage of the new REIT regulatory landscape.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

Johanne D. Abdulrahman is a manager from the Tax Advisory & Compliance practice area of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.