Fubon Construction is set to launch Taiwan's first real estate investment trust (Reit) in July. Advisers to the NT$6 billion ($180 million) deal are finalizing documentation and preparing offering circulars ahead of an expected filing date some time in early July.
The Reit will comprise three buildings: two office towers - Fubon Life Insurance Building and Aegon Building - and, unusually, a residential building. A typical Reit includes buildings of a similar profile, shopping malls for instance, so that investors can more easily manage their exposure to specific sectors of the property market.
But, according to an adviser to the deal, Fubon's residential property actually behaves similarly to the office buildings. It is a high-rise block of serviced apartments leased by a single government tenant under a long-term agreement. As such it generates stable income and is not a difficult property to manage. Likewise, the two office buildings are mainly let by Fubon-group affiliates such as its various insurance companies and Fubon Securities, which is arranging the deal. All three buildings are in Taipei.
By selling these properties into the Reit Fubon Construction will, in effect, wash its hands of them and thereby free itself to concentrate on the more profitable business of developing and managing new properties in Taiwan.
Taiwan's real estate securitization law, passed in July 2003, created two structures for real estate trusts: the real estate asset trust (Reat), which follows the Japanese special purpose trust model, and the Reit, which follows the US mutual fund model. Both structures have been tested for the first time recently. Just last week Tong Yang Chia Hsin International sold Taipei's IBM Building into a NT$2.1 billion Reat.
Being the first deal under the Reit structure, Fubon's advisers worked closely with the relevant government regulators - primarily the Bureau of Monetary Affairs (Boma), but also the Securities and Futures Commission - to fill in a few remaining gaps in the new rules.
Lawyers at Baker & McKenzie, advising Fubon Construction, clarified the functions of a fund manager in the trust and management agreement and, thanks to the close cooperation with regulators, the final approval process with Boma is not expected to throw up any surprises. Although there is no official timeframe advisers are confident it will get the go-ahead by mid-August at the latest.