Rules pave way for REITs THE LOCAL MARKET can expect to see real estate investment trusts (REITs) soon, as the government has approved the tax rules for these corporations.“I have signed the REIT revenue regulations of BIR (Bureau of Internal Revenue). It [sic] should be published in the next day or two,” Finance Secretary Cesar V. Purisima told reporters at the sidelines of the Pilipinas Natin Forum held yesterday at the National Broadcasting Network Studios in Quezon City. Approval of the tax rules, along with the implementing rules and regulations the Securities and Exchange Commission (SEC) released in May, paves the way for investors to establish REITs, stock corporations that pool investor funds to manage real estate assets. This capital market reform has been long-delayed, given that the law governing REITs, Republic Act No. 9856, was enacted into law back in 2009. However, various industry players have cautioned that only a few real estate companies will want to venture into REITs, noting that the prescribed public ownership floor level remains a hurdle for many. According to the SEC, REITs must have a 40% minimum public ownership, increasing to 67% after three years. These are more than the 33.33% float sought by the private sector, but the initial volume is less than the 51% lobbied by the Department of Finance to enable more people to invest in REITs. The government has long been eyeing REITs as a means of deepening the country’s capital markets, since they would enable the wider public to invest in prime properties, while at the same time give real estate firms another source of financing. “The point of REITs is to give the public a chance to invest in prime real estate assets, but not necessarily to make the public own the prime real estate assets,” Marissa Y. Benitez, Colliers International Philippines’ director of valuation, said by phone yesterday. Explaining the challenge posed by the public ownership floor level, Ms. Benitez noted that “companies have been doing a good job running these assets for a long time. It’s their business. And now, they will have to give that up.” Eduardo A. Gana, co-chairman of the Financial Executives of the Philippines’ Capital Markets Development Committee, shared Ms. Benitez’s view. “The minimum public ownership issue is a key consideration for the largest potential REIT issuers, who appear unwilling to dilute their ownership below 60%,” he said via text yesterday. Mr. Gana added that most Asian companies tend to be majority-controlled by insider groups and their affiliates. But he acknowleged that the Finance department’s stand was “not unreasonable.” The tax treatment of REITs is also a stumbling block. Specifically, the private sector has been fighting for value-added tax (VAT) exemption of the initial transfer of properties to REIT vehicles. BIR Commissioner Kim S. Jacinto-Henares -- who had prepared the tax rules -- confirmed via text yesterday that REITs are not entitled to VAT exemption. To be sure, these ventures are entitled to other perks. For one, since firms involved are required to pay shareholders 90% of their distributable income as dividends, only the balance will be subject to the 30% income tax. Ms. Benitez argued, though, that these tax breaks weren’t enough. “The VAT is still 12%,” she noted. “That’s a big cost that negates all other incentives.” As a result, not a lot of investors will likely be interested in setting up REITs, she claimed. This view was echoed by Eduardo V. Francisco, president of BDO Capital & Investment Corp., who noted via text that “big real estate developers don’t seem inclined at the moment.” Property giants that have expressed interest in REITs include SM Prime Holdings, Inc., Ayala Land, Inc., and Gokongwei-led Robinsons Land Corp. Small real estate companies may venture into REITs, since they will have a smaller tax burden, Mr. Francisco noted. But these may not be enough to develop the country’s capital markets, he clarified. Colliers’ Ms. Benitez agreed, saying, “Second-tier companies will see how it goes for first-tier companies. But if first-tier companies don’t venture into REITs, then who will?” -- Diane Claire J. Jiao |
U.S. Stocks Rise as Transport, Consumer-Staple Shares Climb; Costco Gains July 6 (Bloomberg) -- U.S. stocks rose, posting their sixth advance in seven days, as gains in transportation and consumer- staple companies overshadowed a slowdown in service-industry growth and China’s interest-rate increase.Union Pacific Corp. (UNP) climbed 0.8 percent to lead gains in shipping companies, while Costco Wholesale Corp. (COST) rallied 1.7 percent to help lead an advance in companies that sell consumer necessities. DuPont Co., Intel Corp. (INTC) and Caterpillar Inc. (CAT)increased at least 1.3 percent, pacing gains among companies most-dependent on economic growth. Bank of America Corp. (BAC) andJPMorgan Chase & Co. (JPM) slumped at least 1.1 percent as financial stocks retreated. The Standard & Poor’s 500 Index gained 0.1 percent to 1,339.22 at 4 p.m. in New York. The intraday move in the S&P 500 between its high and low was 0.7 percent, following a move of only 0.5 percent yesterday. The Dow Jones Industrial Average climbed 56.15 points, or 0.5 percent, to 12,626.02. Volume on U.S. exchanges totaled almost 6.1 billion at 4:53 p.m., 15 percent less than the three-month average through yesterday. “We’re beginning to put the short-term economic issues behind us,” said Robert Schaeffer, a money manager at Becker Capital Management Inc. in Portland, Oregon, which oversees about $2.5 billion. “We’re likely to get better economic data over the next months and that will rally the stock market on an intermediate basis even if the long-term problems such as too much debt remain unsolved.” Treasuries Advance, Pushing 10-Year Yield to 1-Week Low on Growth Outlook Treasuries rose, pushing 10-year note yields to a one-week low, as China’s announcement it will raise interest rates for the third time this year spurred concern that economic growth will slow and discouraged risk demand U.S. government bonds gained for a second day amid concern Europe’s debt crisis may spread beyond Greece and Portugal. Moody’s Investors Service cut Portugal’s credit rating yesterday to junk status. Treasuries trimmed gains today as U.S. stocks erased losses. “The China story is obviously a component to the nerves in the market,” said Paul Horrmann, a broker in New York at Tradition Asiel Securities Inc., an interdealer broker. “People are held hostage to the headline risks in Europe.” Ten-year note yields fell one basis point, or 0.01 percentage point, to 3.11 percent at 5:05 p.m. in New York, according to Bloomberg Bond Trader prices. The 3.125 percent securities due in May 2021 increased 3/32, or 94 cents per $1,000 face amount, to 100 1/8. Benchmark 10-year note yields earlier touched 3.07 percent, the lowest level since June 29. Thirty-year bond yields slipped one basis point today to 4.36 percent. Yields on two-year notes, among the most sensitive to changes in interest rates because of their short maturity, traded at 0.42 percent, compared with 0.43 percent yesterday. They earlier fell to 0.41 percent, the lowest since June 28. Rates on three-month bills increased one basis point to 0.005 percent after dropping below zero yesterday for the first time since 2008. |
Crude Oil Rises as Industry Report Shows U.S. Stockpiles Fall a Fifth Week Oil rose from a two-day low in New York after an industry-funded report showed crude stockpiles declined for a fifth week in the U.S., signaling fuel demand may be climbing in the world’s biggest consumer of the commodity.Futures climbed as much as 0.6 percent after the American Petroleum Institute said inventories dropped 3.2 million barrels to 357.1 million last week. An Energy Department report today may show supplies slid 2.5 million barrels, according to a Bloomberg News survey of analysts. Brent’s premium to U.S. crude may widen to $40 a barrel or more between now and the middle of 2012, Citigroup Global Markets Inc. said. Crude for August delivery gained as much as 61 cents to $97.26 a barrel in electronic trading on the New York Mercantile Exchange and was at $97.22 at 8:25 a.m. Sydney time. The contract yesterday fell 24 cents to $96.65, the lowest since July 1. Prices are 31 percent higher the past year. Brent crude for August delivery was at $113.62 a barrel, up 1 cent, on the London-based ICE Futures Europe exchange. The European benchmark was at a premium of $16.42 to U.S. futures. The spread reached a record $22.29 on June 15. |
Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com
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