Orava Funds plc proposed converting Orava Residential REIT plc into an exchange-traded real estate alternative investment fund from a real estate investment trust.
In a letter addressed to the REIT's board, Orava Funds presented the benefits of the conversion, highlighting that the unit holders of the company will have a liquid investment as well as the option of redeeming a fund unit at the unit's net value, in addition to the possibility of exchanging fund units into housing company shares through redemption. A conversion could also reduce the company's annual administration fee from 1.17% of the value of its assets to an estimated 1.0%, Orava Funds argued.
Orava Funds' proposal follows the REIT's rejection of a public tender offer by Investors House Oyj and receipt of a proposed fund conversion by Elite Varainhoito Oyj. The company said its board is examining Orava Funds' proposal with a financial and legal adviser.
If the REIT decides to go ahead with the conversion, the units of the fund would be listed on Nasdaq Helsinki's planned new alternative investment fund list. Trading on the exchange will be liquid on the basis of market-making, more than 6,000 unit holders and the "wide range of distributors and visibility provided by Nasdaq Helsinki." The exchange trading will also be a cost-effective alternative for the unit holders, as the only direct trading costs will be brokers' commissions, the letter said.
The letter also discussed risks associated with the conversion, saying the liquidity of the fund could be lower than the liquidity of the REIT even if the fund units are listed. There are other uncertainties associated with the removal of the REIT shares from the exchange and the listing of the fund units, as no such arrangement has been carried out in Finland before.
Orava Funds also noted that large redemptions may lead to a situation where the investments of the fund may have to be realized at a value lower than their gross value.