I
.
 
FOURTEENTH CONGRESS OF THE 
1 
REPUBLIC OF THE PHILIPPINES 
} 
7 L A I N  3Q I> 1 :I 2 
1 
n ‘A 
First Regular Session 
Introduced by SENATOR EDGARDO J. ANCARA 
EXPLANATORY NOTE 
The State recognizes the integral role of the private sector and its capital 
market towards achieving the Constitutional objective of equitably distributing and 
enhancing the democratization of wealth and the development of the Philippine 
economy as a whole towards the realization of the collective objective of achieving a 
Strong Republic. 
Towards this end, the State seeks to promote the establishment of a legal and 
regulatory framework and the creation of a favorable market environment for real 
estate investment trusts. A “real estate investment trust” is a stock corporation 
formed for the sole purpose of investing in income-producing real estate assets. 
Income producing properties include apartment buildings, office buildings, 
warehouses, medical facilities, hospitals, mixed industrial/office buildings and other 
commercial and residential properties. 
In other jurisdictions, the real estate 
investment trust regime has also been used to help develop the tourism industry by 
building resorts, hotels, shopping centers, outlets as well as develop other 
infrastructure projects like highways, railroads, prisons, and other similar projects. 
The main purpose of real estate investment trusts is to provide small and 
large investors alike with the opportunity to participate directly in the ownership 
and financing of large-scale real estate projects at affordable rates of investment, 
without the disadvantages of illiquidity, high transaction and management costs, as 
compared to traditional private real estate ownership. Since the stocks of real 
estate investment trusts should be listed in The Philippine Stock Exchange, Inc., it 
is easier to buy and sell the securities of said companies representing an interest in 
income-producing real estate than to directly buy and sell the properties 
themselves. 
Among the advantages of owning shares in the real estate investment trust 
are as follows: allows the investing public to participate in large real estate projects; 
minimizes the risks of investment since the income-producing real estate assets are 
managed professionally by a real estate investment company manager; steady 
income stream to the investor and the national government since the real estate 
investment trust is required to declare dividends; and allows for cross-border 
investments that will encourage strategic foreign investments in the capital market. 
Since the early ZOOOs, governments around the Asian region have been 
actively promoting real estate investment trusts within their respective countries 
by creating measures that are favorable and conducive to the development of said 
companies. The private sector responded positively and enthusiastically to these 
measures. Within a span of five (5) years, the number of real estate investment 
trusts in Asia grew from five (5) in 2001 to approximately eighty (80) in Augus L 


2006. As of August 2006, total real estate investment trusts’ market capitalization 
in Asia was estimated to be worth $50 billion.’ 
The recent success of said 
companies in Australia, Hong Kong, Japan and Singapore has encouraged industry 
participants and government authorities elsewhere in Asia to introduce similar 
vehicles or to refine existing structures to reinvigorate their local property markets 
and to improve investor access to property investments.2 
Through the “The Real Estate Investment Trust Act of 2007”, real estate 
investment trusts shall be allowed to invest in real estate, whether freehold or 
leasehold, in or outside of the Philippines; real estate-related assets, listed or 
unlisted debt securities and listed shares of or issued by local or foreign non- 
property corporations; government securities issued on behalf of the Philippine 
Government or governments of other countries and cash and cash equivalent items. 
This legal framework is designed to provide a similar structure for investments in 
the real estate industry in the same manner that mutual funds provide for 
investment in stocks and securities. 
For the purpose of protecting investors, the proposed legislation provides that 
real estate investment trusts should be listed in accordance with pertinent rules 
and regulations of The Philippine Stock Exchange, Inc., as well as the regulations of 
the Securities and Exchange Commission. 
Once listed, the real estate company 
will be subject to the stringent disclosure requirements applicable to all listed 
companies. 
The proposed legislation exempts real estate investment trusts from income 
tax as well as documentary stamp tax, value-added tax and income tax on dividends 
under the National Internal Revenue Code of 1997, subject to listing and retention 
requirements. In return for the tax exemptions, real estate investment trusts must 
actually distribute at least ninety percent (90%) of their net income (loss) before 
extraordinary item, depreciation and amortization, or NIDA, (excluding income on 
the sale of a real estate investment trust’s assets that are re-invested in real estate 
investment trust within a certain period from the date of the sale) as dividends to 
its shareholders. 
. 
In sum, the proposed measure on real estate investment trusts would not 
only allow the Philippines to participate in the globalization of the real estate 
investment markets, but, more importantly, contribute to the growth and 
development not only of the capital market but also the national economy through 
increased investment activities. Furthermore, the proposal effectively supports the 
growth of the BPO and tourism industry in the Philippines and will serve to attract 
foreign direct investments in real estate, thereby stimulating much-needed property 
and infrastructure development in the Philippines. 
In view of the foregoing, the urgent passage of the proposed measure is 
requested. 
k 
/fi 
EDGARDO J. ANGARA 
Senator 
“Primer on REITS” by Qingru Li, August 9,2006, p. 2. 
“Asian REITs: A New Dimension for Investors” by Philip Conner, April 2006, p. 5 .  
1 
2 


1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
FOURTEENTH CONGRESS OF THE 
First Regular Session 
REPUBLIC OF THE PHILIPPINES 
SENATE 
S. B. No. 
63 
Introduced by SENATOR EDGARDO J. ANGARA 
AN ACT PROVIDING THE REGULATORY FRAMEWORK FOR REAL 
ESTATE INVESTMENT TRUSTS AND FOR OTHER PURPOSES 
Be it enacted by the Senate and House of Representatives of the Philippines in 
Congress assembled: 
ARTICLE I 
GENERAL PROVISIONS 
SECTION 1. Short Title. - This Act shall be known as “The Real Estate 
Investment Trust Act of 2007.” 
SECTION 2. Declaration of Policy. - It is the policy of the State to 
promote the development of the capital market by providing an enabling regulatory 
environment and legal framework for real estate investment trusts. 
SECTION 3. Definition of Terms. - For the purposes of this Act, the term: 
a. 
“Associate” of a director includes: 
i. 
any member of the director’s immediate family (i.e., spouse, 
child, stepchild, brother, sister or parent); and 
Any company in which he/she and hidher immediate family 
together, directly or indirectly, have an interest of twenty five 
percent (25%) or more. 
.. 
11. 
b. 
“Cash Equivalent Items” means instruments or investments that are 
highly liquid and marketable and are considered good as cash as 
determined in accordance with the rules prescribed by the Commission. 
C. 
“Commission” or “SEC refers to the Securities and Exchange 
Commission of the Philippines. . 
“Deposited Property” means the value of the Real Estate Investment 
Trust’s total assets based on the latest valuation. 
d. 
1 


1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
e. 
“Exchange” means The Philippine Stock Exchange, Inc. or any entity 
registered with the Commission as a stock exchange pursuant to the 
Securities Regulation Code. 
f. 
“Interested Party” includes: 
i. 
11. 
iii. 
iv. 
A director of the sponsor/promoter, Real Estate Investment 
The sponsor/promoter of the Real Estate Investment Trust; 
The Real Estate Investment Trust Manager; 
The adviser of the Real Estate Investment Trust; 
.. 
Trust Manager, adviser or Associate of any such director; or 
A Related Corporation or partnership as may be defined by the 
Commission. 
v. 
g. 
“Net asset value” or “NAV means the total assets less total liabilities 
(excluding shareholders’ interest if this is classified as a liability). 
h. 
“NIDA means net income (loss) before extraordinary item, 
depreciation and amortization. 
“Real Estate Investment Trust Manager” shall be the manager of the 
assets of the Real Estate Investment Trust. 
1. 
j. 
“Real Estate Investment Trust” shall be a stock corporation 
established in accordance with the Corporation Code of the Philippines 
and the rules and regulations promulgated by the Commission or a 
stock corporation organized under the laws of a foreign country solely 
for the purpose of owning income-producing real estate assets and real 
estate securities. 
For purposes of clarity, a real estate investment 
trust, although designated as a trust, does not have the same technical 
meaning as “trust” under existing laws and regulations but is used 
herein for the sole purpose of adopting the internationally accepted 
description of the company in accordance with global best practices. 
“Real Estate-Related Assets” shall mean: 
k. 
i. 
debt securities and listed shares issued by property companies; 
or 
other funds and assets, including personal property, incidental 
to the ownership of real estate. 
.. 
11. 
2 


1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
21 
28 
29 
30 
31 
32 
33 
34 
35 
ARTICLE I1 
REAL ESTATE INVESTMENT TRUST 
SECTION 4. Listing. - A Real Estate Investment Trust must be listed in 
accordance with the rules and regulations of the Exchange. 
SECTION 5. Dividend Distribution. - A Real Estate Investment Trust 
must have a policy of distributing at least ninety percent (90%) of its NIDA as 
dividends to its shareholders. However, this excludes income on the sale of the Real 
Estate Investment Trust’s assets that are re-invested in the Real Estate Investment 
Trust within one (1) year from the date of the sale. 
SECTION 6. Allowable Inuestrnents. - Unless the Commission provides 
otherwise taking into account public interest, the need to protect investors and 
develop the country’s real estate investment industry to make it globally 
competitive: 
6.1 
A Real Estate Investment Trust may only invest in: 
a. 
Real estate, whether freehold or leasehold, in or outside of the 
Philippines. An investment in real estate may be by way of 
direct ownership or a shareholding in an unlisted special 
purpose vehicle constituted to holdlown real estate; 
b. 
Real 
Estate-Related 
Assets, 
wherever 
the 
issuerslassetslsecurities are incorporatedllocated/issuedltraded; 
debt securities and listed shares issued by local or foreign non- 
property corporations; 
C. 
d. 
Government securities issued on behalf of the Philippine 
Government or governments of other countries; and 
Cash and Cash Equivalent Items. 
e. 
At least seventy percent (70%) of the Deposited Property of the Real 
Estate Investment Trust should be invested in allowable investments; 
in case of newly-organized Real Estate Investment Trusts, at least 
seventy percent (70%) of its Deposited Property should be real estate 
and Real Estate-Related Assets. Moreover, not more than fifteen 
percent (15%) of its Deposited Property must be invested in personal 
property. 
6.2 
3 


1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
6.3 
6.4 
6.5 
6.6 
6.7 
A Real Estate Investment Trust must not undertake property 
development activities whether on its own, in a joint venture with 
others, or by investing in unlisted property development companies, 
unless it intends to hold the developed property upon completion. The 
total contract value of property development activities undertaken and 
investments in uncompleted property developments should not exceed 
ten percent (10%) of its Deposited Property. 
At least thirty five percent (35%) of its Deposited Property should be 
invested in real estate. 
Not more than five percent (5%) of its investments in listed or unlisted 
debt securities and listed shares of or issued by property and non- 
property corporations (local or foreign) and other locally-registered Real 
Estate Investment Trusts should be invested in any one issuer’s 
securities or any one manager’s funds. 
A Real Estate Investment Trust may invest in local or foreign assets, 
subject to the terms of its articles of incorporation. 
Where an 
investment in a foreign real estate asset is made, the Real Estate 
Investment Trust should ensure that the investment complies with all 
the applicable laws and requirements in that foreign country, such as, 
but not limited to, foreign ownership restrictions, if any, and requisites 
of having good and valid title to that real estate. 
When investing in real estate as a joint owner, the Real Estate 
Investment Trust should make such investment by acquiring shares or 
interests in an unlisted special purpose vehicle constituted to holdlown 
the real estate and the Real Estate Investment Trust should have 
freedom to dispose of such investment. The joint venture agreement, 
memorandum and articles of association andlor other constitutive 
document of the special purpose vehicle should provide for a minimum 
percentage of distributable profits of the special purpose vehicle that 
will be distributed and grant the Real Estate Investment Trust veto 
rights over key operational issues of the special purpose vehicle. 
SECTION 7. Aggregate Leverage Limit. - The total borrowings and 
deferred payments of a Real Estate Investment Trust should not exceed thirty five 
percent (35%) of its Deposited Property, unless the Commission provides otherwise: 
Provided, however, That the total borrowings and deferred payments of a Real 
4 


1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
L4 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
Estate Investment Trust that has a credit rating of “A” or higher, or a rating similar 
thereto, by any rating agency recognized by the Commission may exceed thirty five 
percent (35%) but not more than sixty percent (60%) of its Deposited Property. 
SECTION 8. Interested Party Transactions. - A Real Estate Investment 
Trust may acquire assets from or sell assets to Interested Parties or invest in 
securities of or issued by Interested Parties: Prouided, That the following 
requirements are met: 
a. 
full, fair, timely and accurate disclosures on the identity of the parties 
and other important details of the transaction have been made to the 
Exchange; 
the price at which the assets are to be acquired or sold is reasonable; 
and 
the assets to be purchased are valued by an independent appraiser, 
b. 
e. 
SECTION 9. Valuation. - A full valuation of a Real Estate Investment 
Trust’s assets must be conducted by an independent appraisal company, duly 
accredited by the Commission, at least once a year in accordance with the 
applicable rules of asset valuation and valuation methodology prescribed by the 
Commission. 
SECTION 10. 
Purchase of Real Estate Assets. - A Real Estate 
Investment Trust should purchase or sell real estate assets for value. 
SECTION 11. Withdrawal of Registration. - If the Commission finds that 
the Real Estate Investment Trust was established so as to seek the benefits of this 
Act without a true intention to carry it out, the Commission shall withdraw or 
cancel the registration of the Real Estate Investment Trust. The Real Estate 
Investment Trust shall pay as fine an amount equal to the taxes plus a surcharge of 
twenty five percent (25%) of the said taxes from which the Real Estate Investment 
Trust has been exempted, without prejudice to the penalties under this law and the 
National Internal Revenue Code of 1997, as amended. 
5 


1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
ARTICLE I11 
THE REAL ESTATE INVESTMENT TRUST MANAGER 
SECTION 12. Duties and Qualifications. - Unless the Commission 
provides otherwise under terms and conditions which it may deem sufficient to 
protect the investing public, the Real Estate Investment Trust must appoint an 
independent Real Estate Investment Trust Manager who shall be responsible for 
managing the assets of the Real Estate Investment Trust. The Real Estate 
Investment Trust Manager shall be appointed in accordance with the rules and 
regulations of the Commission. The following are the qualifications of a Real Estate 
Investment Trust Manager: 
a. 
It must be a corporation duly organized under the laws of the Republic 
of the Philippines; 
It must be registered as a property manager with the Commission; 
It must have a minimum paid-up capital stock of One Million Pesos 
(Php 1,000,000.00), unless the Commission provides otherwise; 
Its office in the Philippines must have a meaningful role in its business 
activities and must perform accounting, compliance and investor 
relations services in the Philippines; 
It must employ a resident chief executive officer and at least two (2) 
full-time professional employees; 
Such other qualifications as the Commission may hereafter provide. 
b. 
c. 
d. 
e. 
f. 
SECTION 13. Commissions. - Commissions or fees paid by the Real Estate 
Investment Trust to the Real Estate Investment Trust Manager should be 
reasonable and no higher than market rates. 
SECTION 14. Penalties. - Any and all breach by the Real Estate 
Investment Trust Manager of the provisions of this Act and the rules and 
regulations of the Commission shall be punishable by a penalty of revocation of its 
corporate registration and a fine of not less than Two Hundred Thousand Pesos 
(Php200,OOO.OO) and shall subject its officers and employees responsible for such 
breach to a penalty of imprisonment for two (2) years and a fine of not less than One 
Hundred Thousand Pesos. 
6 


1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
ARTICLE IV 
TAXES AND OTHER RELATED ISSUES 
SECTION 15. Income Taxation of Real Estate Investment Trusts. - 
Real Estate Investment Trusts shall be exempt from income tax under Chapter IV, 
Title I1 of the National Internal Revenue Code of 1997, as amended. 
SECTION 16. Transfer of Assets. - Any existing law to the contrary 
notwithstanding, the sale or transfer of assets to Real Estate Investment Trusts, 
which includes the sale or transfer of any and all security interest thereto, shall be 
exempt from the following taxes: 
a. 
Documentary stamp tax on the abovementioned sale or transfer of 
assets as may be imposed under Title VI1 of the National Internal 
Rcvenuc Code of 1997, as amended; 
Capital gains tax on the abovementioned sale or transfer of assets 
classified as capital assets as defined under Section 39 of the National 
Internal Revenue Code of 1997, as amended; 
Creditable withh01.ding income tax imposed on the sale or transfer of 
assets classified as ordinary assets pursuant to Revenue Regulations 
No. 2-98, as amended; and 
Value-added tax on the transfer of assets as may be imposed under 
Title IV of the National Internal Revenue Code of 1997, as amended, 
or gross receipts tax under Title V of the same Code, whichever is 
applicable. 
b. 
c. 
d. 
Except for registration fees payable to the Commission, all applicable 
registration and annotation fees to be paid, related or incidental to the transfer of 
assets, or the security interest thereto, shall be fifty percent (50%) of the applicable 
registration and annotation fees. 
SECTION 17. Issuance and Transfer of Securities. - The original 
issuance of shares in Real Estate Investment Trusts shall be exempt from DST, or 
any other taxes imposed in lieu thereof. All secondary trades and subsequent 
transfers of shares in Real Estate Investment Trusts, including all forms of credit 
enhancement in such instruments, shall not be exempt from DST, CGT and VAT, or 
any other taxes imposed in lieu thereof, without prejudice to the exemptions from 
the aforesaid taxes under the National Internal Revenue Code of 1997, as amended. 
7 


. I  
1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
I8 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
SECTION 18. Diuidends. - Dividends paid by Real Estate Investment 
Trusts to its shareholders shall not be subject to income tax under Title I1 of the 
National Internal Revenue Code of 1997, as amended. 
SECTION 19. Conditions for Tux-Free Treatment. - Real Estate 
Investment Trusts shall benefit from Sections 15 to 18 of this Article if it meets the 
following requirements: 
a. 
The Real Estate Investment Trust complies with all the requirements 
of Article I1 hereof; 
In order to qualify for the exemption from taxes as provided in Sections 15 
and 17 hereof, the Real Estate Investment Trust must be listed and remain 
listed with the Exchange; and 
b. 
C. 
d. 
The Real Estate Investment Trust complies with the applicable 
minimum public ownership requirement of the Exchange; 
The Real Estate Investment Trust must actually distribute at least 
ninety (90%) of its NIDA (excluding income on the sale of the Real 
Estate Investment Trust’s assets that are re-invested in the Real 
Estate Investment Trust in accordance with this Act), if any, as 
dividends to its shareholders; 
In order to qualify for the exemption from taxes as provided in Section 
16 hereof, the Real Estate Investment Trust must not subsequently 
sell or transfer real estate and real estate-related Assets, and any and 
all security interest thereto, within a period of five (5) years from the 
date of the sale or transfer to the Real Estate Investment Trust. If any 
tax-exempt asset acquired by a Real Estate Investment Trust is sold, 
transferred or otherwise disposed of within a period of less than five (5) 
years from such transaction, the exemption of said transaction from 
said taxes shall be deemed revoked and all of said taxes shall become 
due and payable and subject to all interests and surcharges thereon. 
SECTION 20. Delisting of the R e d  Estate Investment Trust. In the 
event the Real Estate Investment Trust is delisted from the Exchange, whether 
voluntarily or involuntarily, the tax incentives granted under this Act shall be ipso 
facto revoked and withdrawn and any tax incentives that may have been availed of 
by the Real Estate Investment Trust from the date of delisting shall immediately be 
8 


1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
I6 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
refunded to the Government and the surcharge and penalty prescribed by Section 
11 hereof shall apply. 
ARTICLE V 
PENAL PROVISIONS 
SECTION 21. Penalties. -Any person who violates any of the provisions of 
this Act, or the rules and regulations promulgated by the Commission under 
authority hereof, or any person who, in a registration statement, notice, or any 
submission filed under this Act, makes any untrue statement of a material fact or 
omits to state any material fact required to be stated therein or necessary to make 
the statements therein not misleading, shall, upon conviction, suffer a fine of not 
less than Fifty Thousand Pesos (P50,OOO.OO) nor more than Five Million Pesos 
(P5,000,000.00) or imprisonment of not less than six (6) years and one (1) day nor 
more than twenty-one (21) years, or both in the discretion of the court. If the 
offender is corporation, partnership or association or other juridical ent,ity, the 
penalty may, in the discretion of the court, be imposed upon such juridical entity 
upon the officer or officers of the corporation, partnership, association or entity 
responsible for the violation, and if such officer is an alien, he shall in addition to 
the penalties prescription prescribed, be deported without further proceedings after 
service of sentence. 
ARTICLE VI 
MISCELLANEOUS PROVISIONS 
SECTION 22. Implementing Rules and Regulations. - The Commission, 
in coordination with the Bangko Sentral ng Pilipinas (“BSP) and the Department 
of Finance (“DOF), 
shall promulgate the implementing rules and regulations 
implementing the provisions of this Act; Provided, That the Commission, BSP and 
the DOF may continue to issue separate regulations that will apply exclusively to 
the institutions under their respective jurisdiction, consistent with the 
implementing rules and regulations. 
SECTION 23. Repealing Clause. - All laws, executive orders, rules and 
regulations, and parts thereof which are inconsistent with this Act are hereby 
repealed or amended accordingly. 
9 


1 
2 
3 
4 
5 
6 
I 
8 
9 
10 
11 
SECTION 24. Separability Clause. - If, for any reason, any article or 
provision of this Act or any portion therefore or application of such article, 
provision, or portion thereof to any person, group, or circumstance is declared 
invalid or unconstitutional, the remainder of this Act shall not be affected by such 
decision. 
SECTION 25. Effectivity Clause. - This Act shall take effect fifteen (15) 
days after its complete publication in the Official Gazette or in at least two (2) 
newspapers of general circulation in the Philippines. 
Approved, 
10