Bangkok--17 Nov--Fitch Ratings
Fitch Ratings says that refinancing capability and access to debt capital markets are likely to be crucial to Thai Real Estate Investment Trusts (REITs), given their limited ability in retaining long-term cash. Access to debt capital markets would likely provide medium- to long-term benefits to the REITs as a more diversified funding source and offer longer-term financing than bank loans.
Existing regulations require a Thai REIT to pay dividends of at least 90% of its adjusted net profit. The average return on assets of Thai listed property funds has been about 8.0%-8.5% over the past three years, therefore, their refinancing risk would be quite significant for debt financings shorter than 20 years and with loan to value (LTV) ratios at about 20%-25%.
Fitch expects REITs launched and/or to be launched this year to need refinancing (at maturity). Debt financing for the initial investment of these REITs are likely to be mainly through five to seven year-term secured bank facilities, with LTV ratios of about 20%-25%, based on the preliminary information these new REITs submitted to regulators, (compared to the regulatory ceiling of 35% for non-rated and/or non-investment grade rated REITs and 60% for investment-grade-rated REITs).
Access to debt capital markets should provide the REITs with financing alternatives with longer maturities to match their cash flow profiles, once the regulations are in place. The regulatory body expects to issue the regulations on the offering of debt securities (i.e. plain bonds) by REITs by the end of this year.
The first Thai REIT - Impact Growth REIT - was launched in late September 2014 and successfully invested in exhibition centres with a total value of about THB19.6bn (USD0.6bn). It is the largest REIT initial public offering in Asia outside Japan so far this year. A second Thai REIT, which plans to invest in industrial properties (warehouses and factories for rent), has already been approved by the regulator and will be launched in December 2014. There are three other REITs in the process of seeking approval from regulators - two plan to invest in industrial properties, while the third targets a shopping mall. Fitch expects Thai REITs total asset values to reach about THB40bn (USD1.2bn) by the end of this year or early 2015.
Fitch expects Thai property investment funds to post strong growth. Total capital raised via all property investment funds (property funds and REITs) is likely to be about THB74bn (USD2.3bn) in 2014. (2013: THB66.2bn). Total market capitalisation of the listed property funds and REITs was THB297.6bn (USD9.3bn) and THB15.3bn (USD0.5bn) respectively as at 6 November 2014 (end-2013: THB243bn).