The Securities and Exchange Commission is drafting new measures to make the dividends-focused property holding firms more flexible for issuers. The goal: to spur listings and market activity in a softer climate.
SEC Chair Francis Ed Lim told InsiderPH that one major proposal is to give REITs more time to reinvest proceeds from asset sales.
“For example, on the usage of funds, the period to use is one year. We can extend it to three years… so you have more flexibility, encourage issuers,” Lim said.
Under current rules, proceeds from REIT asset sales must be reinvested within one year, or they will need to be paid out as dividends to stockholders.
Dividends are a defining feature of REITs, which are required to pay out at least 90 percent of their distributable income to stockholders each year.
Another proposed tweak will allow REITs to pay down debts tied to their real estate assets, again providing more flexibility in how they can use proceeds.
“The rules are silent whether they can use the proceeds to pay off loan obligations that they tapped to develop the property,” Lim explained.
Analysts’ view
AP Securities research head Alfred Benjamin R. Garcia said the changes may help REIT operators manage their capital better, but some smaller investors could see it as delaying the dividends they’re expecting.
“It gives leeway for issuers to more carefully plan out the best way to utilize funds, and allows them the option to use proceeds to strengthen their balance sheet,” Garcia told InsiderPH.
“However, the best way to maximize value from a shareholder point of view is for funds to either be deployed immediately or paid out as dividends,” he added.
What’s next?
SEC Commissioner McJill Bryant T. Fernandez said they’re finalizing the new REIT rules before releasing these for public comment.
“The target is within the year,” he said.
Miguel R. Camus has been a reporter covering various domestic business topics since 2009.
