The Securities and Exchange Commission will impose a regulation to support the conversion of private existing property funds into new Real Estate Investment Trusts (REITs), says SEC secretary-general Vorapol Socatiyanurak.
The SEC needs to issue the rule as existing property funds are allowed to raise funds and borrow for investment expansion only until the end of 2013.
Unitholders' meetings for property funds must approve the conversion with a majority vote of total investment units sold, and asset management firms must inform unitholders to comply with the mandate.
These firms must provide unitholders a comparison of Type 1 property funds and REITs in terms of return, investment policy, fees and tax impact. Type 1 property funds must convert the assets to a REIT to allow an exchange of unit trusts, and the liquidation process will commence afterward.
The property fund unitholders will then become REIT unitholders, with a 1:1 conversion ratio.
The SEC will relax relevant regulations to assist the conversion procedures. For example, property funds will be allowed to own real estate or lease-holds for less than one year.
The restriction on unitholding for Type 1 property funds will be temporarily exempted during the conversion process, whereas the effective date of the registration statement and draft prospectus of REITs will be expedited.
The one trust manager-one REIT rule generally applies to REITs, and it will also be exempted for converted REITs. This is because a number of asset management companies currently manage a lot of Type 1 property funds investing in the same asset type, and applying the rule would hinder the conversion of Type 1 property funds 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 a REIT under its management has already invested.
"The SEC promotes trust to be a vehicle for the real estate sector's fundraising, in line with international practice. Thus, the regulations will be amended to support the conversion to facilitate investment expansion without compromising investor protection," said Mr Vorapol.