The biggest winners of the new measures are expected to be Reit management companies (RMCs), say sources in the country.
The SECP has done three things. First, it has reduced the minimum paid-up capital requirement of RMCs to Prp50m ($492,198.65) from the previous Prp200m ($1.97m). On top of that, RMCs are also now allowed to own a smaller stake in the Reit compared to before — 5% from the earlier mandatory 20%. And third, the authority has given the nod to strategic investors to take up stakes of at least 20%.
“[All these rules] are interrelated,” a spokesperson for the SECP told GlobalCapital Asia. “RMCs wanted to be treated more as a fund managers and not investors. That is why the concept of strategic investor has been introduced, who is willing to hold a 20% stake in the Reit fund for its life and is more aware of the intricacies of real estate development and management.”
The measures come into force just as the country is preparing for its first real estate trust — the Dolmen City Reit, which will be managed by Arif Habib Dolmen Reit Management. The Reit is expected to get the final green light on April 24, with bookbuilding expected to begin in May.
Dolmen Reit will be worth around Prp23bn ($226m), with only some Prp3.5bn ($34m) expected to be raised from the public market. But interest is already strong, said a source close to the situation. This is thanks to the juicy yields on offer, which stand at 9.33% in the first year and rise to as much as 14% in the fifth year, and then to 22% in the tenth.
The units are expected to have a floor price of Prp10 ($0.098) and a ceiling of Prp13 ($0.128), although this can be tweaked closer to bookbuilding.
“We are seeing a lot of demand from institutions already because people love the yield story,” said the source.
As part of the changes, the SECP has also eliminated many layers of approvals that were required under previous regulations. Now it has made the process more disclosure based, while also allowing pre-IPO investors to come on board Reits for the very first time.
“[This] is [important] as pre-IPO investors are sophisticated investors that understand the risk and rewards of Reits ,” said the SECP spokesperson. “They are likely to give comfort to IPO investors, who have less technical expertise to evaluate a Reit IPO.
“These regulations are likely to bring in more people to Reit schemes who either want to construct a property or want to unlock their wealth through a rental Reit scheme,” he added.