Sri Panwa Hotel Property Fund (SPWPF) is set to become the first property fund to convert to a real estate investment trust (REIT).
The move is expected this year, pending approval by the Securities and Exchange Commission (SEC).
SPWPF's sponsors and unit holders agree that the fund should be allowed to borrow in order to invest and unlock growth, though they will lose tax privileges, Tipaphan Puttarawigorm, an executive vice-president of SCB Asset Managment (SCBAM), told the Bangkok Post.
The Sri Panwa REIT (SPWREIT) will be managed by Charn Issara REIT Management Co, and SCBAM, SPWPF's manager, will be a trustee.
In exchange for losing tax perks, the REIT must pay a three-satang higher dividend yield to the unit trust holders in the first year of the conversion to boost the yield to 7.2% from the current 6.99%.
Even though the SEC announced it would allow property funds to convert to REITs in December 2013, no property fund has taken up the offer since the dividend paid by REITs is subject to a 10% withholding tax, while property funds are exempt.
However, one advantage of a REIT is that it can borrow up to 35% of its net asset value and the leverage ratio can be increased to 60% if the unit trusts are rated investment grade, as property fund's borrowing is limited to 10%.
Moreover, property funds are restricted to investing in assets in Thailand while a REIT can invest overseas.
Ms Tipaphan said SPWREIT, which positions itself as the owner of luxury hotel assets, will not restrict its investment to Charn Issara's assets.
SPWPF now invests in the luxury Sri Panwa Hotel in Phuket.
Charn Issara also has hotels in many destinations including Cha-am and plans to develop a joint-venture luxury hotel in Taiwan.
At present, SCBAM manages nine property funds. Sri Panwa and IBIZ invest in hotels, while Ticon Industrial Growth Leasehold Property Fund (TGROWTH) and Pinthong Industrial Park Property Fund (PPF) are in industrial estate assets.
CPN Retail Growth Leasehold Property Fund (CPNRF) and Crystal Retail Growth Leasehold Property Fund (CRYSTAL) are in shopping centres.
The remaining three, CPN Commercial Growth Leasehold Property Fund (CPNCG), Siri Prime Office Property Fund (SIRIP) and Prime Office Leasehold Property Fund (POPF), are in office buildings.
SCBAM is also REIT trustee of LH Shopping Centers Leasehold Real Estate Investment Trust (LHSC) and Hemraj Leasehold Real Estate Investment Trust (HRIT).
The asset management arm of Siam Commercial Bank was awarded a REIT manager licence by the SEC last year.