A primer to understanding the P-REIT

3. PUBLIC LISTING

The P-REIT is required to be listed in the stock exchange within two years in order for it to continue enjoying the tax incentives provided under the REIT Act. The rationale for requiring the P-REIT to list its shares in the stock exchange is to provide liquidity to the P-REIT investors by providing an exit mechanism for investors wishing to unload their P-REIT shares. 

Failure on the part of the P-REIT to register within the prescribed two years or maintain its listed status will result in the P-REIT losing its special corporate tax incentive (discussed in No. 11 - Taxation of the P-REIT) as well as the payment of the waived Documentary Stamp Tax including interests, surcharges and penalties.

4. EXTERNAL FUND & PROPERTY MANAGER

Fund and Property Managers play very active roles in the management of the REIT’s assets; monies are sourced from the investing public. The REIT Act, therefore, imposes several safeguards to protect the interest of the P-REIT’s stockholders and prevent abuses or mismanagement by the Fund and Property Managers.

The REIT Act requires a P-REIT to have an independent external fund and property manager. This feature was adopted from other Asian models that require the appointment of an external fund manager to manage the funds of the REIT. This was adopted to ensure that transactions entered into by the REIT’s fund managers are always for the interest of the P-REIT and not for the personal interest of the directors or officers of the REIT. 

To ensure that the Fund and Property Managers servicing the P-REITs are professionally-run entities which possess the required competence and experience, the REIT Act requires the Fund and Property Managers to comply with the minimum requirements as to their capitalization, personnel, management and track record, as enumerated in the REIT Act.

5. CAP ON MANAGERS’ FEES AND EXECUTIVE COMPENSATION

The REIT Act imposes a cap on fees received by the Fund and Property Managers which are not to exceed 1percent of the net asset value of the assets under their management. The purpose of this requirement is to curb the common practice of Fund Managers of computing their fees based on the percentage of properties acquired or disposed. This practice, if left unchecked, can lead managers into buying and selling sprees of properties that may not be to the best interest of the stockholders. 

As with the fees of the Fund and Property Managers, the REIT Act and its Implementing Rules also imposes a cap on the total annual compensation of all directors and principal officers which is 10 percent of net income before taxes of the P-REIT.                                                      

 (To be continued)

(Evelyn Garcia-Cantre is a Senior Manager of Tax of Manabat Sanagustin & Co., CPAs, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in the Philippines. For comments or inquiries, please email [email protected] or [email protected])