“REIT” stands for Real Estate Investment Trust, and it is also called “ทรัสต์เพื่อการลงทุนในอสังหาริมทรัพย์” in Thai. It is a part of the Trust for Transactions in Capital Market.
The REIT is modeled after mutual funds. Ownership is held by the Trustee and does not have a juristic person status. The REIT settlor will eventually become the REIT Manager whom will offer the trust units to the public investors, use the funds to invest in potential properties, and register the trust units on the stock exchange. REITs are publicly traded like stocks.
Once the REIT is established, the REIT Manager will manage the REIT, both in terms of finances and real estate management, generating income by renting out properties. Unitholders will receive returns from the profits. According to REIT regulations, at least 90% of the adjusted net profit must be paid out. Additionally, the REIT has a trustee who oversees and safeguards the assets, ensuring the interests of the unitholders are protected.
Benefits of REIT
Established as a REIT
- Enables investment in a wider variety of real estate types compared to Property Funds, but it must not be a business is unethical or illegal, and the real estate must be intended to generate income in the form of rent. Examples, factories and warehouses, hotels, office buildings, shopping malls, exhibition centers, and even real estate abroad.
- REIT can borrow up to 35% of the total asset value. If it has an Investment Grade Rating, it can borrow up to 60% of the total asset value, using the funds to invest or develop real estate to achieve higher returns.
- REIT can partially develop real estate on its own.
- Allows companies with expertise in the real estate business to manage the properties of the REIT.
- Adheres to international standards comparable to those in other countries.
REIT Real Estate Investments type
The REIT may choose between two types of investment types:
- Direct investment by acquiring/obtaining ownership in the real estate (Freehold or Leasehold).
- Indirect investment by investing through a company which the REIT holds ≥ 99% of the total shares. A system must be in place to ensure that such company complies with rules similar to those of the REIT.
Investors
- No need to invest a large amount of money; there is higher liquidity in buying and selling compared to direct real estate investment.
- Can invest in a wider variety of real estate types.
- Managed by experts, including both the REIT Manager and Property Manager, with a Trustee overseeing and safeguarding the interests of the unitholders.
- Receive consistent returns, as REITs must pay out 90% of the adjusted net profit, helping to diversify the risk in portfolio.
Owners of Property
Real estate development companies or property owners can offer income-generating properties that meet the quality standards and criteria to the REITs, either in the form of Freehold (ownership) or Leasehold (lease rights). This allows them to use the funds for investment and future project development.
Types of Real estate for the REIT Investment
The REIT will be managed for investing in all types of real estate, but it must not be an immoral or illegal business, and it’s also allowed for investing in any oversea real estate.
There are 5 types of real estate in Thailand which the REIT always invest;
Office
Investing in rental office buildings, it can be high office buildings till small office buildings. Rental cost will be based on the quality of each office building, location and its facilities that will fulfil the tenant’s needs, and also the access of massive transportation systems.
Retail
Investing in retails real estate is managed for large shopping malls located in business centers, and medium- small sized community malls. Rental income is derived from the leasing of commercial spaces for customers who do a retail business and varied services. Recruiting anchor tenant to rent the largest space is focused in order to increase the high income and build a great reputation of that real estate.
Industrial Real estate
Investing in industrial real estate is managed for relevant manufacturing, storage, and distribution center, or E-Commerce distribution center. Rental income will be regularly generated. This type of real estate is normally located outside business center as a large area is required for machinery installation, storage, and product handling conveyors. It must be easily accessed by comfortable transportations, and also conveniently reached by land, air and water transports.
Exhibition Center
Investing in exhibition and convention centers is managed in order to generate income from leasing real estate or sharing spaces with clients.
Hospitality
Investing in hotels and resorts is managed by leasing the real estate to a master lessee who will benefit from those real estate, and then pay the rental fees. Both fixed rent and variable rent will be calculated based on the concerned agreement and conditions in order to create the best profit for both parties.
Assets for the REIT Investment is can be managed for investing in more than one type of real estate that are related and supported by each other, for instance, investment in office buildings and retails, or investment in retails and hospitalities.
For generating income from real estate investment, the REIT must create the best return on rental real estate by not being its business operator, such as hotels or hospital activities, and the tenants must not use the real estate for doing any immoral and illegal business.