REITs Could Ease Burden On Small Real Estate Investors

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Cambodia, real estate, investment, REITs
REITs could improve the market visibility of the Kingdom’s stock market.

Cambodia’s property sector is booming, but investment in commercial real estate and high-grade rental assets is capital-intensive, providing few opportunities for smaller investors. However, a new investment tool may change all, allowing a pool of individual investors to earn income from commercial real estate without actually having to buy the assets.

Lamun Soleil, director of market operations at the Cambodia Securities Exchange (CSX), said the bourse operator is considering the possibility of creating a mechanism for real estate investment trusts (REITs) to list on the exchange. “We have already started to do some feasibility research on REITs, but it is in a very early stage,” he said.

A REIT is an investment vehicle which operates similar to a mutual fund by pooling the capital of individual investors to purchase – and often to manage as well – income-generating real estate properties like apartment complexes, hospitals, warehouses, hotels and shopping malls.

Investors receive a share of the income generated by the REIT’s portfolio of properties as a dividend, extending them the benefits of real estate ownership without the capital costs and challenges of being a landlord. As with other securities, REITs are often listed and traded on an exchange. Their initial public offerings (IPOs) have come to dominate the global real estate IPO market, with many investors perceiving them as offering relatively stable yet attractive yields.

Soleil said the addition of REITs could improve the market visibility of Cambodia’s stock market, which currently lists just five companies. Listing REITs on the exchange could attract investors seeking high yields, as REITs typically distribute all of their taxable income as dividends to shareholders he added.

“For the financial market, it will help promote the market’s visibility and liquidity since the real estate industry is booming,” Soleil said. “Also, the REIT’s dividend yield is usually higher than other exchange-traded products.”

In the view of Reid Kirchenbauer, manager of Khmer Ventures, a Cambodia-based closed-end property fund, REITs could make the Kingdom’s booming real estate market more accessible to investors. “REITs will allow investors to buy property in Cambodia in a hassle-free manner, with a much lower minimum investment,” Kirchenbauer said. “Companies will gain from being able to find a greater variety of investors in a more passive way.”

However, while REITs operate similar to property funds and can be listed like equities, Cambodia would be required to develop a proper regulatory framework before introducing them into the local market. “There aren’t currently any laws in Cambodia to govern a REIT as opposed to a standard publicly listed company,” he stated. “The proper framework would need to be in place before the country is ready for REITs.”

The market regulator must first establish regulations for operating a collective investment scheme (CIS) as one of the requisites for launching the first REIT in Cambodia according to Soleil. “[REITs] can be launched once CIS regulations are ready by Securities and Exchange Commission of Cambodia.”

While the first REIT listing on Cambodia’s exchange could be many years off, several international REITs are already eyeing up Cambodian properties for their portfolio. Thai REIT manager for Strategic Property Investors Co has announced plans to set up a closed-end REIT, Strategic Hospitality Freehold and Leasehold Real Estate Investment Trust, and is aiming to shore up to $160m in an IPO on the Stock Exchange of Thailand later this year. The  proceeds and borrowing will be used to invest in five foreign luxury hotels, including two Cambodian properties – Raffles Le Royal Phnom Penh Hotel and Raffles Grand Hotel in Siem Reap.

Eakapong Tungsrisanguan, chief financial officer of JWD Group, a Thai logistics and supply chain management company which is planning its first REIT, said that financial regulators in most countries permit REITs to include foreign assets in their portfolio, making Cambodian properties a potential asset for investment.

“Cambodia assets are interesting options for REITs since the regulation and investment policy of most REITs, such as in Thailand, allow for investment in overseas assets,” Eakapong said. Even in the case of a REIT that includes Cambodian properties in its portfolio, however, in his view it would make more sense to list the REIT on a foreign exchange. “If the REIT is to be listed in the CSX, it is likely to have a liquidity problem, which will significantly affect investors’ interest,” he said. “…It will be preferable to establish and list the REIT in another country and purchase Cambodian assets as part of that REIT.”

Eakapong said JWD Group currently has no plans to add its properties in Cambodia, which include a 4,400 square-metre refrigerated warehouse, into its REIT’s portfolio. But that could be subject to change.

“No Cambodian properties will be included in JWD REIT in the early phases,” he explained. “But we may consider including overseas assets [to build a REIT portfolio] in the future.”

This article was originally published in the Phnom Penh Post.