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Macquarie Plans 300 Bln Won Property Trust, Second in S. Korea

April 25 (Bloomberg) -- Macquarie Bank Ltd., Australia's biggest investment bank, plans to sell as much as 300 billion won ($318 million) of stock in a South Korean property trust, its second in the nation, the head of its real estate unit said.

Macquarie Property Advisors Korea Ltd. is looking for two or three commercial office buildings for the fund before a share sale in the second half, Richard Han said in an interview. Macquarie this month agreed to pay $126 million for a 19-storey office tower in Seoul's central business district.

Accelerating economic growth is increasing the value of real estate assets in South Korea, and the country's REITS are attracting investors with the highest dividend yields in Asia. Seven Korean property trusts have sold shares in the past five years with a combined market capitalization of 2 trillion won.

``We will launch a second REIT with an asset size of 200 billion won to 300 billion won in the second half,'' Han said. ``We will be targeting a yield of around 8 percent -- smaller than the first fund -- as there has been yield compression from a shortage of supplies that can't meet growing demand.''

The first Macquarie Central Office CR REIT which pays a dividend yield of 12 percent, is to be liquidated in early 2009. A REIT is a company that manages a property portfolio and pays little or no tax on rental earnings as long as this income is mainly paid out in dividends to shareholders. They are listed on the stock exchanges and trade like shares.

Attractive Yield

A booming economy that is fueling rental growth and reducing vacancies has made South Korea an increasingly mouthwatering target for investors, Han said.

``From a risk-return perspective, Korea is very attractive,'' he said. ``Commercial buildings can generate sound profits with a relatively low vacancy rate, which is backed by good prospects of economic growth over the longer term.''

In comparison, Japan's REITs offer dividend yields between 3 to 4 percent, Singapore provides 5 to 6 percent, while Thailand yields 2 to 3 percent, according to a Bloomberg Data.

South Korea's central bank and the government forecast that the economy will grow 5 percent in 2006, the fastest in four years. The International Monetary Fund this month raised its forecast to 5.5 percent from 5 percent.

The overall Seoul office vacancy rate fell to 3.2 percent in the first quarter, from 4.1 percent in the final quarter of 2005, according to Jones Lang LaSalle.

Hurdles to Growth

Han said restrictions on REITs -- such as on the amount they could borrow -- could deter some investors.

South Korea is trying to spur the REIT market by amending the Real Estate Investment Trust Act, easing borrowing and initial capitalization requirements set at 25 billion won, said Lee Chang Hee, a Construction Ministry official.

``Also hindering growth in the REIT market here is the strong obsession with owning properties,'' Han said. ``Companies are reluctant to monetize real estate assets.''

Meanwhile, demand for investment grade property across Seoul remains solid, supported by both local funds and foreign capital chasing a limited pool of sellers, he added.

In Asia, the Sydney-based Macquarie has concentrated on Hong Kong, Singapore and Seoul, where office buildings and shopping malls are thriving, along with China.