Opinion No. 22-10RE: Real Estate Investment Trust (REIT)

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Securittes ang Exchange Commission FPENTE

OFFICE OF THE GENERAL COUNSEL

SEC-OGC Opinion No.22-+0 Re: Real Estate Investment Trust (REIT) {5_ August 2022

1179 Don Chino Roces Ave., cor. Bagtikan St. PRYCE CORPORATION 17th Floor, Pryce Center Makati City joraevasav@prvceagses.com

Attention: Atty. Jorge Patrick A. Yasay

Dear Atty. Yasay:

various matters involving a real estate investment trust (REIT) company. This refers to your letter dated 11 March 2020 requesting the Commission's opinion on

estate development company duly registered with the Commission, engaged in the development and operation of memorial parks. Pryce is planning to put up a REIT company under the name "Pryce REIT" pursuant to Republic Act No. 98561 or the REIT Act. You stated in your letter that Pryce Corporation ("Pryce") is a property holding and real

of its real properties used in the operation of its memorial gardens business. In the alternative, Pryce is also considering conveying to Pryce REIT, either through sale or assignment, the above described real properties Once Pryce REIT is incorporated, Pryce is contemplating on leasing to the former some

parks are: a) the sale of the burial lots; b) the sale of double interment right; c) collection of periodic maintenance assessment charges; and d) rentals from the use of the memorial park facilities. Currently, the types of income that Pryce generates from the operation of the memorial

Relative thereto, Pryce is requesting the Commission's opinion on the following queries:

1 "Is it correct to believe that the term "income-generating real estate" excludes income from (a) to (d) enumerated above?" 2. "Can Pryce lease to Pryce REIT its real properties used in the operation of its memorial parks business?"; and

3. "Can Pryce convey (by sale or assignment) to Pryce REIT the memorial parks?"

1 Laps 27(1) of the Constitution d into law on 17 December 2009, without the signature of the President, in accordance with Article VI, Section

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Nature and Allowable Investments of REIT

Corporation Code, now the Revised Corporation Code (RCC), and the rules and regulations promulgated by the Commission principally for the purpose of owning income-generating real estate assets.2 The term "income-generating real estate" means real property which is held for the purpose of generating a regular stream of income such as rentals, toll fees user's fees and the Jike, as may be further defined by the Commission.3 The REIT Act defines an REIT as a stock corporation established in accordance with the

invest in, which includes real estate on leasehold that is located in the Philippines, to wit: Section 8.3 of the REIT Act provides the allowable investments that a REIT may only

"8.3 Allowable Investments --- A REIT may only invest in:

I I. Vi I V Such other similar investment outlets as the Commission may allow. Cash and cash equivalent items; and Real estate, whether freehold or leasehold, located in the Philippines. A REIT may invest in income-generating real estate located outside of the Philippines: Provided, That such investment does special authority from the Commission. The Commission in issuing such authority shall consider, among others, satisfactory proof that the valuation of assets is fair and reasonable. An investment in real estate may be by way of direct ownership or a shareholding in an unlisted Real estate-related assets, wherever the issuers, assets, or securities are incorporated, located, issued, or traded; Managed funds, debt securities and listed shares issued by local or foreign non-property corporations Government securities issued on behalf of the Philippine government or not exceed forty percent (40%) of its deposited property and only upon special purpose vehicle constituted to hold/own real estate; agencies; governments of other countries and securities issued by multilateral

xxx"{Emphasis supplied)

the total value of the REIT's assets reflecting the fair market value of the total assets heid by the REIT. Further. at least seventy-five (75%) of the deposited property of the REIT must be invested in or consist of. income-generating real estate5 These real property assets form part of the deposited property4 of the REIT, which is

which is that it primarily invests in real estate which has a steady stream of income. Specifically, at least seventy-five (75%) of the deposited property of Pryce REIT must be invested in, or consist of, income-generating real estate.6 Based on the foregoing, Pryce REIT must meet the requirements of the REIT Act, among

the primary sources of income of the memorial parks, are dispositions of real property assets, thus there would be no generation of recurring income for the REIT selling such real property assets. Upon the sale by the REIT of the burial lots and double interment rights to the buyers, the As to your first query, the sale of the burial lots and double interment rights, which are

2 Article I, Section 3, par. (cc) of the REIT Act. 3 Article i, Section 3, par. (m) of the REIT Act 4 Article I, Section 3, par. (i) of the REIT Act. (i] "Deposited Property" means the total value of the REIT's assets based on the latest valuation determined in accordance with the rules and regulations promulgated by the Commission. 5 Article I1, Section 8.5 of the REIT Act 6 See Note 5 14/F The SEC Headquarters,7907 Makati Avenue (+63 2) 8818 5348 / (+63 2) 8818 5418 a www.sec.gov.ph | imessagemo@sec.gov.ph Salcedo Village, Bel-air, Makati City TuVRhaintand W S DHO 084

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REIT divests itself of its ownership rights in favor of the buyer. Thus, these properties may not be considered as part of the income-generating real estate assets of a REIT.7

estate as these may generate a regular stream of income, same as the nature of the rentals and the use of the memorial park facilities may fall under the definition of income-generating real user's fees mentioned in the definition of REIT under the REIT Act.% In this case, there is no deprivation of the REIT's ownership rights over the real property assets subject of these maintenance assessment charges and rentals on the use of the memorial park facilities. Meanwhile, the collection of periodic maintenance assessment charges and rentals from

assignment, its real property assets used in the operation of its memorial parks business to Pryce REIT, provided that Pryce REIT must ensure that at least seventy-five (75%) of its deposited property must be invested in, or consist of, income-generating real estate as discussed above. As to your second and third queries, Pryce may lease or convey, either by sale or

binding upon the Commission in other cases or upon the courts whether of similar or dissimilar facts, circumstances and documents disclosed/submitted, and should be considered relevant solely to the particular issue raised therein. It shall not be used in the nature of a standing rule circumstances.9 If upon investigation, it will be disclosed that the facts relied upon are different, this opinion shall be rendered null and void. It shall be understood that the foregoing opinion is rendered solely on the basis of the

Please be guided accordingly.

ROMUALD C. General Con se PADILLA MMM

7 Subject to actual evaluation by the Commission's Markets and Securities Regulation Department upon submission of 8 See Note 7. % Section 7, SEC Memorandum Circular 2003-15, 16 December 2003. application for incorporation of a REIT

14/F The SEC Headquarters,7907 Makati Avenue (+63 2) 8818 5348 / (+63 2) 8818 5418 . www.sec.gov.ph | imessagemo@sec.gov.ph Salcedo Village, Bel-air, Makati City TAhei nlanc Oc