INVESTMENT IN THE REAL ESTATE INVESTMENT TRUST (REIT)

Image Source

Published — May 13, 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.

Read also: THE REAL ESTATE INVESTMENT TRUST (REIT) ACT OF 2009

• Investment in a REIT shall be by way of subscription to or purchase of shares of stock of the REIT.

• A REIT may provide in its Articles of Incorporation different classes of shares of stock enumerating therein their respective features.

• No shares of stock of the REIT shall be offered for subscription or sale to Public Shareholders except in accordance with a REIT Plan registered with and approved by the Securities and Exchange Commission (Commission).

Investment in a Real Estate Investment Trust (REIT) shall be by way of subscription to or purchase of shares of stock of the REIT.

The Implementing Rules and Regulations of REPUBLIC ACT NO. 9856 or “The Real Estate Investment Trust (REIT) Act of 2009”provides:

A REIT may provide in its Articles of Incorporation different classes of shares of stock enumerating therein their respective features.

No shares of stock of the REIT shall be offered for subscription or sale to Public Shareholders except in accordance with a REIT Plan registered with and approved by the Securities and Exchange Commission (Commission). The REIT Plan shall take the place of a prospectus. It shall contain the following information:

1. investment policy, restrictions and strategy of the REIT;
2. discussion on the business plan for property investment and management covering the scope and type of investments made or intended to be made by the REIT, including the type(s) of real estate (e.g., leisure, residential, commercial, or industrial);
3. general character and competitive conditions of all real estate now held or intended to be acquired by the REIT and how such real estate meets the established criteria for selection;
4. nature and risks of making property investments in each of the relevant locations, including:
   1. demographics;
   2. state of the economy, economic risks and foreign exchange risk;
   3. political risks;
   4. legal risks and tax considerations;
   5. policies that affect property investments and property sales;
   6. overview of the property market;
   7. analysis of the specific property sector and the competitive dynamics in the rental market;
   8. operational requirement; and
   9. rules and regulations governing property ownership and tenancy matters;
5. terms and conditions of the arrangements or agreements that have been entered into by the REIT for it to own legal and beneficial title over specific property, and the benefits and risks of such arrangements including but not limited to, any agrarian-related issues, if any;
6. transaction history of the relevant property in the three (3) years immediately preceding the date of the valuation report included in the REIT Plan;
7. any proposed program with timetable for renovation or improvement to the real estate, including the estimated costs thereof and the method of financing to be used;
8. the operating date of each of the real estate, including the occupancy rate, number of tenants and its mix in terms of occupation or business, principal provisions of the leases, average annual rental per square meter, and schedule of lease expirations for the next three (3) years;
9. the borrowing policy and the method or proposed method of operating and financing the real estate investments of the REIT;
10. where real estate to be acquired are to be financed (wholly or in part) through borrowings, details of the borrowings must be disclosed including, but not limited to, the source, type, term/period and nature of the borrowings and the interest rate to be paid by the REIT and the risks involved with respect to borrowings;
11. the measures in place to mitigate or minimize risks relating to the investment and management of real estate owned by the REIT;
12. the dividend policy;
13. the insurance arrangement for the assets of the REIT;
14. the exit strategy in the event of divestment (including the exit from any joint ownership arrangement), factors and risks which may impact or act as an impediment to an exit, and the contingency plan;
15. details of transactions or agreements entered into with related parties;
16. full particulars of the nature and extent of the interest, if any, of any director of the REIT, the Fund Manager, the Property Manager or any Related Parties to the REIT, in the property owned or proposed to be acquired by the REIT; and where the interest of such a director consists in being a partner in a firm, the nature and extent of the interest in the firm, with a statement of all sums paid or agreed to be paid to him or the firm for services rendered to the REIT;
17. functions, duties and responsibilities of the Property Manager and the Fund Manager and, where applicable, shareholding of the Property Manager and/or the Fund Manager in the REIT;
18. corporate information on the Property Manager, including number of years in real estate/property management or alternatively, information on two (2) responsible officers who have at least five (5) years track record in real estate/property management, total assets under management, staff strength, resources, internal controls and risk management system;
19. information on the directors and Principal Officers of the Property Manager, highlighting the academic and/or professional qualification as well as experience possessed by the respective personnel;
20. corporate information on the Fund Manager, including number of years in fund management, total assets under management, staff strength, internal controls and risk management system;
21. information on the directors and Principal Officers of the Fund Manager, highlighting the academic and/or professional qualification as well as experience possessed by the respective personnel;
22. details on substantial fees to be paid by the REIT, such as property management fees and fund management fees. The fees paid to the Property Manager and the Fund Manager must be clearly stated and shall include:
    1. the percentage rate to be paid by the REIT;
    2. the basis on which the property management fee is calculated; and
    3. an illustration on how the fee is calculated;
23. names, designation and the direct and indirect shareholdings in the REIT of Promoters, Principal Shareholders, directors, Principal Officers and principal officers of the Property Manager and the Fund Manager;
24. disclosure on how the proceeds of the public offering and any other funds raised in connection with the public offering will be utilized with timetable; and
25. pro-forma financial statements which shall include information on Net Asset Value and Net Asset Value per share before listing and after the proposed public offering.

In order to be valid, any material amendment to the REIT Plan shall be approved by the Commission. Any amendment to the Plan shall be effective only upon compliance with the requirements relative to said amendment/s.

The shares of stock of the REIT shall be registered with the Commission in accordance with the Securities Regulation Code (SRC) and listed in accordance with the rules of the Exchange.

---

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.

All rights reserved.

---

SUBSCRIBE NOW FOR MORE LEGAL UPDATES!

[email-subscribers-form id=”4″]