SEC to facilitate Type 1 realty funds into REITs
The Securities and Exchange Commission will facilitate the conversion of existing Type 1 property funds into real estate investment trusts (REITs) to enhance investment opportunities in the private sector.
SEC secretary-general Vorapol Socatiyanurak said the agency would issue regulations in support of the conversion, with Type 1 property funds currently allowed to raise funds and borrow for investment expansion until the end of this year.
In consummating the conversion of a fund, a unit-holders’ meeting will have to approve the change with a majority vote of all the investment units sold. An asset-management company must inform unit-holders of information relevant to the conversion before the meeting date.
The information provided must include a comparison of the Type 1 property fund and REIT in terms of return, investment policy and fee, as well as the tax impact. The fund must sell the assets to the newly established REIT for an exchange of unit trusts, after which the liquidation process will commence. The property-fund unit-holders will then become REIT unit-holders, with a 1:1 conversion ratio.
The SEC will relax regulations to assist the conversion procedure. For example, the property funds will be allowed to own real estate or leasehold for less than one year.
Furthermore, the restriction on unit-holding in the Type 1 property fund will be temporarily exempted during the conversion process, whereas the effective date of registration statement and draft prospectus of REITs will be expedited.
In addition, the “one trust manager-one REIT rule”, which generally applies to REITs, will be exempted for those converted from Type 1 property funds. This is because a number of asset-management companies currently manage many Type 1 property funds investing in the same asset type, and applying the rule would hinder their conversion into REITs.
Under the “one trust manager-one REIT rule”, a trust manager is not allowed to establish a new REIT to invest in an asset type in which an REIT under its management has already invested.
“The SEC promotes trusts to be a vehicle for the real-estate sector’s fund-raising, in line with international practice. Therefore, the relevant regulations will be amended to support the conversion, which will be beneficial to investors and facilitate the private sector’s investment expansion without compromising investor protection,” Vorapol said.
