Thai Government Green Lights REITS

Posted: 25 Oct 2010 | 6:00 am

In what is seen as a key stimulator for hotel and property investment the Thai Securities and Exchange Commission (SEC) has vetted a regulatory process for the introduction of fully fledged REIT's (Real Estate Investment Trusts) in the country.

According to published news reports and an update issued by legal firm Baker & McKenzie in Bangkok the new REIT framework allows for a upgraded model of international standards versus the current restrictive Thailand Property Fund for Public Offering.

Key highlights of the REIT structure when compared to the existing Property Fund mechanism is the ability to leverage in debt up to 50% of net asset value (previously this was 10%); and a holding restriction of 50% within affiliated companies ( up from 33 1/3%).

Currently the Thai Revenue Department is looking at tax implications for the REIT's and has yet to issue formal documentation. It's expected that over time the current Property Fund model will be grandfathered out and that the more sophisticated REIT structure will take place.

A number of large Thai listed hospitality groups including Dusit Thani and Centara Hotel & Resorts have funds with considerable asset value.

From our analysis of the implications for hotels, there looks to be two possible scenarios. The first would be Thai groups would look to inject existing asset into REIT's taking advantage of favorable interest rates and gear these accordingly. Then using the proceeds to expand overseas into single and multiple assets.

For market watchers a key acquisition recently was Thai based Onyx (formerly Amari Hotels & Resorts) purchase of the Hong Kong based Shama Group.

Second is an attraction for overseas institutions to re-enter Thailand back of a more generally accepted structure which is a positive, but could also lead to a rise in highly speculative growth driven developments which could undermine existing fundamentals.

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