It is apparent that the Covid-19 pandemic has had a tremendous impact on every business sector. Above all, the hospitality industry has taken the hardest hit, as tourism is its primary source of revenue. Due to a lack of financial liquidity and growing expenditure, it is not an overstatement to predict that real estate owners in the hospitality sector would be compelled to sell their operating assets potentially at an unfavorable price in order to survive during this challenging time.
On February 1, 2021, Thailand's Securities and Exchange Commission (the "SEC") announced a new regulation regarding real estate investment trusts (the "REIT") with buy-back conditions, which are distinct from typical REITs. The ultimate goal is to help real estate investors improve their financial condition by selling their assets to REITs. The structure of REITs with buy-back conditions will allow real estate owners to repurchase their assets within a defined period of time and at a predetermined price.
On June 11, 2021, the Capital Market Supervisory Board issued the Announcement of the Capital Market Supervisory Board TorJor. 47/2564 re: Issuance and Offers for Sale regarding Units of REITs (No. 22), which came into effect on July 1, 2021 (the “Regulation”), defining two types of REITs with buy-back conditions for offering to (1) General Investors or (2) Institutional Investors or Ultra-High Net Worth Investors.
According to the Regulation, buy-back conditions can be agreed upon between REITs and real estate owners, including a defined date and price for the asset's buyback.
The key similarities and differences between these two types of REITs with buy-back conditions may be seen in the table below:
In addition to the REITs with buy-back conditions for freehold assets, the SEC’s Regulation introduced a new structure of REITs to cover investments over leasehold asset, known as “REITs with termination options”. The leasehold investment criteria are similar to those for freehold investments, albeit with a few minor modifications.
REITs with termination options are divided into two types, depending upon who can exercise the right to terminate the lease agreement, either by (a) REITs (as the lessee) or (b) the lessor. The fundamental information of REITs with termination options is summarized as follows:
We believe that structuring REITs with buy-back conditions and REITs with termination options would help alleviate the current tension in the real estate industry as it paves the way for real estate owners to seek financial assistance through a sale or lease of asset to REITs. On the other hand, investors in REITs can rest assured that the REITs will generate steady income and gain project margin once the real estate owner repurchases the asset.
For more information, please contact the authors or our team at Kudun and Partners.
Authors:
Chai Lertvittayachaikul
Partner
Kamonrat Kongtheing
Associate
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