Cathay No. 2 REIT Fund opens on a high note on its first day of trading

Cathay Life Insurance Co (國泰人壽), the nation's largest life insurer, yesterday launched its second real estate investment trust (REIT) fund on the domestic exchange.

The Cathay No.2 REIT Fund was off to a good start, rising 1.9 percent to close at NT$10.19 per unit on the Taiwan Stock Exchange. More than 80,000 units were traded yesterday, according to the stock exchange.

Similar to stocks, REIT products use a pool of investment capital to purchase and manage property and mortgage loans or a combination of both.

dividends

Cathay No.2 is backed by three office buildings in Taipei that have seen almost full occupancy.

Investors will be paid dividends twice a year -- in June and December, according to a Cathay Life official.

The three office buildings are the Minsheng Building, located at the intersection of Minsheng E Rd and Dunhua N Rd, the World Building on Nanjing E Rd and the Anhe Building near the intersection of Dunhua S Rd and Renai Rd.

attractive yields

Cathay Life originally planned to raise approximately NT$7.2 billion (US$217.3 million) through the Cathay No. 2 REIT, with the Minsheng Building, the World Building and the Anhe Building accounting for 51 percent, 29 percent and 21 percent, respectively.

But as REITs have become one of the most popular investment products in the country, offering yields of 4 percent or more annually, Cathay No. 2 ended up attracting orders of more than NT$33.8 billion in the pre-listing stage and was 4.69 times oversubscribed.

MediaTek Inc (聯發科), the world's biggest maker of chips for DVD players, reportedly bought 50 million units of Cathay No.2 for NT$500 million, according to Chinese-language media reports.

Fitch Ratings yesterday assigned national long-term "A(twn)" and national short-term "F1(twn)" ratings to Cathay No. 2, with a stable outlook.

strong cash flow

Fitch Ratings attributed the ratings to strong cash flows generated from these properties which boast of a base of high-quality tenants.

Johnson & Johnson, including its affiliates and subsidiaries, is the largest tenant and contributes about 11 percent to the gross rental income of the properties.

The properties' other major tenants include Cathay Life Insurance, Schenker Taiwan, Abbott Laboratories, Eztravel.com (易遊網), E. Sun Bank (玉山銀行) and Boehringer Ingelheim, according to Fitch Ratings.

Cathay No. 2 was established on Oct. 2. Other REITs trading on the local exchange were launched by Fubon Group (富邦集團), Shin Kong Group (新光集團) and Lehman Brothers.