Thailand discovers Real Estate Investment Trusts

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shangri_la_river_viewThe Thailand Revenue Department’s recent decision on tax incentives for real estate investment trusts (REITs) is likely to trigger REIT listings in the second half of the year, according to a International Financing Review Asia report.

Developers, which had been awaiting clarity on the tax treatment, are now preparing for REIT listings totaling about $775 million. These will be the first such offerings in Thailand since the Securities and Exchange Commission changed a rule in January 2014, requiring property companies to use REITs instead of property funds for financing.

In addition to the uncertainty over tax treatment, borrowers had hesitated to list REITs for fear that interest rates would rise and, consequently, increase their financing costs, and that investors would steer clear of Thailand’s markets due to the political turmoil gripping the country since last fall.

The borrowers are now more confident that rates will remain benign and that, with street protests toning down, investors will be willing to return to the Thai market.

“The market sentiment has improved from the start of the year and we could see a fairly active second half,” said one banker.

In general, demand for yield products in Thailand remains strong on expectations that rates will either stay stable or fall further, given the local economic slowdown, he added.

The tax decision did not fall in favour of developers. Existing property funds transferring assets into a REIT will not be eligible for any tax concessions. Dividends property funds paid to a listed parent are tax-exempt. Dividends REITs will be taxed at the normal corporate rate of 20 per cent.

“Issuers have to live with the current tax regulations and see how they can raise money,” an industry source said.

However, property funds that the regulator had approved in the past can still issue units.

Impact Exhibition Management, a subsidiary of listed Bangkok Land, is expected to be the first REIT to hit the market. Impact Exhibition plans an IPO of up to $300 million either near the end of the second quarter or early in the third quarter. Kasikorn Securities and Maybank Kim Eng will manage the IPO.

Other REIT IPO candidates this year include WHA Corp, which recently announced plans to transfer logistics assets  totaling $142 million to a REIT, and Ticon Industrial Connection, which plans a warehouse REIT IPO of up to $300 million.

Central Hotel and Resorts is targeting a $100 million REIT of some of its hospitality assets, but the IPO probably will not happen until 2015. Lands & Houses Retail Property Fund is planning a $300 million – $600 million property fund IPO after being granted approval last year.

The most recently issued Thai property fund IPOs priced with yields of about 8 to 9 per cent. Thailand has been moving towards a REIT regime in line with other countries in Asia. REITs are viewed as less-volatile investments and are, of course, more liquid than owning physical property. As the income of a REIT is purely based on rentals, it is able to distribute as much as 90 per cent of it to shareholders. Also, a REIT can gear up to 33 per cent of its asset value, unlike a property fund, which can only do so up to 10 per cent.

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Reading Time: 2 minutes

The Thailand Revenue Department’s recent decision on tax incentives for real estate investment trusts (REITs) is likely to trigger REIT listings in the second half of the year, according to a International Financing Review Asia report.

Reading Time: 2 minutes

shangri_la_river_viewThe Thailand Revenue Department’s recent decision on tax incentives for real estate investment trusts (REITs) is likely to trigger REIT listings in the second half of the year, according to a International Financing Review Asia report.

Developers, which had been awaiting clarity on the tax treatment, are now preparing for REIT listings totaling about $775 million. These will be the first such offerings in Thailand since the Securities and Exchange Commission changed a rule in January 2014, requiring property companies to use REITs instead of property funds for financing.

In addition to the uncertainty over tax treatment, borrowers had hesitated to list REITs for fear that interest rates would rise and, consequently, increase their financing costs, and that investors would steer clear of Thailand’s markets due to the political turmoil gripping the country since last fall.

The borrowers are now more confident that rates will remain benign and that, with street protests toning down, investors will be willing to return to the Thai market.

“The market sentiment has improved from the start of the year and we could see a fairly active second half,” said one banker.

In general, demand for yield products in Thailand remains strong on expectations that rates will either stay stable or fall further, given the local economic slowdown, he added.

The tax decision did not fall in favour of developers. Existing property funds transferring assets into a REIT will not be eligible for any tax concessions. Dividends property funds paid to a listed parent are tax-exempt. Dividends REITs will be taxed at the normal corporate rate of 20 per cent.

“Issuers have to live with the current tax regulations and see how they can raise money,” an industry source said.

However, property funds that the regulator had approved in the past can still issue units.

Impact Exhibition Management, a subsidiary of listed Bangkok Land, is expected to be the first REIT to hit the market. Impact Exhibition plans an IPO of up to $300 million either near the end of the second quarter or early in the third quarter. Kasikorn Securities and Maybank Kim Eng will manage the IPO.

Other REIT IPO candidates this year include WHA Corp, which recently announced plans to transfer logistics assets  totaling $142 million to a REIT, and Ticon Industrial Connection, which plans a warehouse REIT IPO of up to $300 million.

Central Hotel and Resorts is targeting a $100 million REIT of some of its hospitality assets, but the IPO probably will not happen until 2015. Lands & Houses Retail Property Fund is planning a $300 million – $600 million property fund IPO after being granted approval last year.

The most recently issued Thai property fund IPOs priced with yields of about 8 to 9 per cent. Thailand has been moving towards a REIT regime in line with other countries in Asia. REITs are viewed as less-volatile investments and are, of course, more liquid than owning physical property. As the income of a REIT is purely based on rentals, it is able to distribute as much as 90 per cent of it to shareholders. Also, a REIT can gear up to 33 per cent of its asset value, unlike a property fund, which can only do so up to 10 per cent.

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