Getting to know “Risk Factor” of Real Estate Investment Trust (“REIT”)
“Risk” is the possibility of any unwanted incidents occurred, it may affect some goals or some objectives in the future, and it may also fail any operation plans after the goals set. Risk assessment analysis for the possible Impact and kikelihood must be done.
“Risk Factor” is the important cause or reason that may increase the risk of failure in some business after the goals set, it cannot be expected where, when, how and why that happens. Any specific risk factors must be the real causes concerned, so risk assessment and analysis will be arranged efficiently in order to later minimize all risk possibilities.
Risk Factor of “REIT”
Before making any investments, we know very well these sentences “Investments contain risks, Investors are advised to study all necessary information in the prospectus before making investment”, there is also no exception for “REIT” investment. Risk is the most influential factor, but it is often neglected. Thus, PROSPECT RM would emphasize the importance of risk factors of the REIT that may be summarized as follows;
- Risk of leasehold real estate may decrease the value of investment due to a limited lease period.
- There might be a problem on acquiring the ownership of real estate.
- Risk of high competition might affect the recruitment for retail tenants, lease period, and rental fees rate under the lease terms.
- Losing anchor tenants may the high risk that affects the income from the REIT investment.
- Risk from inability to use the assets as a result of failure by a contractual party to perform under any agreement relating to the investment in and the REIT property management.
- the REIT manager and/ or Property Manager might not be able to perform well all operations according to the REIT planned strategies.
- The performance of the REIT is partly in reliance on the ability of the REIT Manager and the Property Manager to manage and procure benefits from the REIT assets.
- Risk arising from conflict of interest.
- Risk from borrowings.
- Political risk.
- Economic changes in both Thailand and overseas may be occurred together with other possible factors.
- Risk arising from expropriation of land.
- Increase in expenses relating to the real estates which are in possession of the REIT, as well as increase in operating expenses.
- Risk associated with the compensation of property insurance may not be worth the economic benefits that the REIT may lose and in the case of damage, the REIT may lack revenue during construction.
- Real estate’ tenants might not renew their lease contract, recruiting for a new tenant might take longer time.
- Risk from natural disasters, accidents and sabotages.
- There might be an adjustment or change of financial regulations and laws in Thailand
- Risk associated with the market price of the REIT units may decrease after the unit offering.
- Risk of the actual performance might differ materially from the expected.
- A cancellation of an offer for the REIT units offering.
- Risk from the requesting listing for all issued the REIT units.
- The lack of liquidity might be a problem for trading the REIT units in the Stock Exchange of Thailand.
- Risk from changing of tax policy or relevant laws.
