Sri Panwa’s REIT Path Conversion Making Waves

The planned conversion of the Sri Panwa Property Fund into a REIT (real estate investment fund) is expected to change the way many Thai hotel owners approach the marketplace.

According to a story in yesterday’s Bangkok Post the strategic shift is planned within this year and is subject to SEC approval.

 It’s understood the REIT would be managed together by Charn Issara and Siam Commercial Bank under specific asset management units.

As to why the fund would shift to a REIT, the major benefit is that loans can be obtained up to 35% of the asset’s value and leveraging of debt up to 60%. Property fund are only allowed to obtain loans up to 10% of the value, hence the benefit of the REIT is significant.

What is significant in the change is the ability to use the capital markets to leverage assets and grow investment. Another key feature of REIT’s versus property funds, is the former is allowed to invest internationally, while the latter is limited to Thailand.

Reports in the press have revealed plans by Charn Issara to expand abroad in a Taiwan joint venture hotel asset.

Looking at the history of hotels using the older property fund regime in the country is the fact that as properties have grown older the debt threshold has limited the ability to upgrade and remain dynamic performing assets.

 This limitation has been further magnified high levels of guarantees to fund subscribers, which has hampered capital investment. Another negative has been single asset fund’s that have only one hotel and are subject to operating volatility versus funds which have multiple hotels in different destinations and are able to spread risk.

We’d expect more Thai hotel owners and groups to look at using REIT’s to fund expansion both domestically and overseas, along with using the structure to upgrade assets at a greater pace in the short to medium term.