SY-LED DEVELOPER SM Prime Holdings, Inc. has dropped a plan to put up real estate investment trusts (REITs) in the face of strict tax bureau regulations, company officials yesterday said.

They said the firm, which last year announced plans to raise at least P500 million via the alternative investment vehicle, would be looking at other funding options.

‘We don’t think we will avail of the current [REIT] structure given the strict rules on minimum public ownership,’ said Jeffrey C. Lim, SM Prime executive vice-president, at a press briefing announcing parent firm SM Investments Corp.’s first half earnings.

‘I guess we have to wait and see what happens next,’ he added.

The Bureau of Internal Revenue last month issued rules regulating the establishment of REITs, stock corporations that pool investor funds to manage income-generating real estate assets. Among others, it required REITs to have a 40% minimum public float, to be raised to 67% within three years after listing.

Jose T. Sio, SM Investments chief finance officer, said any additional fundraising moves would not be made this year as SM Prime had met all funding requirements for the second half up to the middle of next year.

‘We will continue with other forms of projects given a lot of liquidity in capital raising. The REIT is just a bonus in our continuing exercise of fundraising,’ Mr. Sio told reporters.

Other developers which have expressed intentions to establish REITs such as Robinsons Land Corp. and Ayala Land, Inc. were not immediately available for comment yesterday.

Earlier this week, an industry expert warned that the stringent REIT rules could stifle foreign investment in the property sector.

Frederick John Manuel, general manager of property consultancy firm Jones Lang LaSalle Leechiu, said: ‘REIT rules are friction costs that reduce yield for investors.’

‘It makes it harder for foreign investors to invest in something already diluted,’ he added.

SM Prime’s decision to drop its REIT plans came as parent firm SM Investments announced a 13% increase in first half net income to P9.64 billion, ascribed to the strong performance of its residential and banking subsidiaries.

‘[SM Investments’] proven capability to deliver in spite of domestic and global challenges is brought about by the positive results regularly turned in by our core businesses,’ SM president Harley T. Sy said in a statement. 

SM Investments’ banking group accounted for 31.4% of total net income, followed by retail with 30.4%. Shopping malls and real estate contributed 23.3% and 14.9%, respectively.