FUND MANAGER UNDER THE REIT ACT OF 2009

Published — June 6, 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.

An entity may only engage in the business of a REIT Fund Manager once it has obtained the necessary license to act as such, in accordance with the rules and regulations of the Securities and Exchange Commission (Commission).
A REIT Fund Manager can either be a registered domestic corporation, a trust entity with an existing Bangko Sentral ng Pilipinas (BSP) license, or a foreign corporation duly licensed to do business in the Philippines.
Its chief executive officer or any equivalent officer, or trust officer must have two (2) full-time and qualified professional employees, who shall have a track record and experience in financial management as well as experience in the real estate industry for at least three (3) years.

A REIT shall appoint a Fund Manager who shall be independent of the REIT, its promoter/s or sponsor/s. To ensure independence of the Fund Manager from the REIT, the following shall be complied with:

Majority of the members of the board of the REIT Fund manager must be independent directors, at least one (1) of whom must have a working knowledge of the real estate industry, fund management, corporate finance, or other relevant finance-related functions;
The directors (including the independent directors) of the REIT and its Sponsors/Promoters cannot jointly occupy more than 49% of the board of directors of the REIT Fund Manager.

Implementing Rules and Regulations (IRR) of the Real Estate Investment Trust (REIT) Act of2009 (R.A. No. 9856) provides that:

Organization and Requirements.

1. 1. An entity may only engage in the business of a REIT Fund Manager once it has obtained the necessary license to act as such, in accordance with the rules and regulations of the Commission.
  2. A REIT Fund Manager can either be a registered domestic corporation, a trust entity with an existing Bangko Sentral ng Pilipinas (BSP) license, or a foreign corporation duly licensed to do business in the Philippines, subject to the following minimum requirements:
    1. duly licensed under these Rules to engage in the business of fund management for REIT. If the Fund Manager is a trust entity with an existing BSP license, it shall be covered by existing BSP rules and regulations governing trust entities and regulations which the BSP may from time-to-time issue.
      1. A Fund Manager that is a BSP registered trust entity is no longer required to secure a separate license for a REIT Fund Manager from the Commission, provided: that the REIT has sufficiently established with the Commission that its appointed Fund Manager has complied with all the requirements under the REIT Act and this Implementing Rules and Regulations.
      2. Notwithstanding the immediately preceding paragraph, all REIT Fund Managers shall be supervised by the Commission.
    2. with at least three [3]-year track record in the area of fund management corporate finance, other relevant finance-related functions, property management in the real estate industry or in the development of real estate industry.
    3. with a minimum paid-up capital of One Hundred Million Pesos (Php 100,000,000.00). This capitalization shall remain unimpaired at any given time, otherwise, an additional capital infusion shall be made within three (3) working days from such impairment, provided: that the Fund Manager shall comply with the additional paid-up capital, and/or other guidelines that may be prescribed by the Commission, in consideration of the nature, scale, and complexity of the Fund Manager’s operations;
    4. with sufficient human, organizational and technical resources for the proper performance of its duties, including two (2) responsible officers or a trust officer, in case of a trust entity, each of whom shall have at least three (3) years track record in fund management. At least one (1) of the responsible officers or a trust officer, in case of a trust entity, shall be available at all times to supervise the business of the Fund Manager;
  3. Its physical office in the Philippines shall have a meaningful role in its business activities and must perform accounting, compliance and investor relations services in the Philippines. The following non- exhaustive factors are relevant to the assessment of the role of the Fund Manager in its business activities:
    1. the composition and mandate of the Fund Manager’s board of directors or trust committee and management committees;
    2. the extent to which the chief executive officer or its equivalent, or its trust officer, and directors, or trust committee members who are resident of the Philippines participate in the formulation of investment strategies and financing activities of the Fund Manager; property acquisition; leasing; operational and financial reporting (including operating budgets); appraisals; audits; market review; accounting and reporting procedures, as well as refinancing and asset disposition plans;
  4. Its chief executive officer or any equivalent officer, or trust officer must have two (2) full-time and qualified professional employees, who shall have a track record and experience in financial management as well as experience in the real estate industry for at least three (3) years.
    A Fund Manager is deemed to have complied with the track record requirement of the REIT Act if its chief executive officer and not less than two (2) of its full-time professional employees have a track record and experience in financial management as well as experience in the real estate industry for at least three (3) years prior to their employment. The chief executive officer and the 2 full-time qualified professional employees shall all be residents of the Philippines;
  5. It must comply with the requirements on the number of independent directors, as provided under relevant law or appropriate regulatory authority, such as but not limited to pertinent provisions of the Securities Regulations Code (SRC) and the Revised Code of Corporate Governance;
  6. The qualifications and disqualifications of the directors of the Fund Manager must comply with the provisions of the Revised Code of Corporate Governance and the fit and proper rule prescribed in this IRR.
  7. Must comply with the additional requirements or qualifications for a Fund Manager in accordance with the Fit and Proper Rule, the Revised Code of Corporate Governance, and such relevant regulations, which the Commission may prescribe from time to time.

Functions of the Fund Manager

The Fund Manager shall perform the following functions:

Implement the investment strategies of the REIT by: (i) determining the allocation of the Deposited Property to the allowable investment outlets in accordance with the REIT Plan and the investment strategy of the REIT; and (ii) selecting income generating real estate in accordance with the investment strategy of the REIT.

Notwithstanding the written instructions of the REIT, it shall be the fiduciary responsibility of the Fund Manager to objectively evaluate the desired investments, and formally advise the REIT of its recommendation, even if contrary to the instruction;

Oversee and coordinate the following activities: property acquisition; leasing; operational and financial reporting (including operating budgets); appraisals; audits; market review; accounting and reporting procedures, as well as refinancing and asset disposition plans;
Cause a valuation of any of the real estate and other properties of the REIT to be carried out by the Property Valuer once a year and whenever the Fund Manager believes that such valuation is appropriate;
Take all necessary measures to ensure: (i) that the Net Asset Value per unit of a REIT is calculated as and when an annual valuation report is issued by the Property Valuer for the relevant period, and that such Net Asset Value per unit shall be disclosed in the annual reports; (ii) that the investment and borrowing limitations set out in the REIT Plan and the conditions under which the REIT was authorized are complied with; (iii) that all transactions carried out by or on behalf of the REIT are conducted at arm’s length; (iv) that at all times a REIT has proper legal title to the real estate it owns, as well as to the contracts (such as property contracts, rental agreements, joint venture or joint arrangement agreements, and any other agreements) entered into on behalf of the scheme with respect to its assets and that each such contract is legal, valid and binding and enforceable by or on behalf of the REIT; and (v) that the Property Manager obtains adequate property insurance for the real properties of the REIT from insurance companies approved by the Fund Manager. It shall take custody of all relevant documents supporting the insurance taken on real properties of the REIT.

Perform all such functions necessary and incidental to asset management.

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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FUND MANAGER UNDER THE REAL ESTATE INVESTMENT TRUST (REIT) ACT OF 2009

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