Real%20Estate%20Investment%20Trust%20(REIT)

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Real Estate Investment Trust (REIT)

• Does a REIT worth to invest?

Section 4 (Group 5)
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What is REIT?

• Real Estate Investment Trust (REIT)
• REIT pronounced reet
• a collective investment scheme that invests in a
  portfolio of income-generating real estate such
  as shopping malls, offices, hotels or service
  apartments in Hong Kong and/or overseas

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What is REIT?

• managed by professional REIT manager
• buy or sell REIT through Stock Exchange
• governed by SFCs Code and listing rules issued
  by the Stock Exchange

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What is REIT?
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REITs Characteristics
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Overview

• Regular cash inflow
• Low risk
• High liquidity
• Managed by professionals

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Firm Business Focus

• Mainly real estate sector
• Cant own significant non-real estate assets
• Returns
• - Dividends
• - Value appreciation

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Dividend Policy

• At least 90 after tax income
• The Link 100
• Average 6-7

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Safe Custody of Properties

• Managed by licensed manager by SFC
• The Link
• - The Link Management Limited
• - Facilities are held on trust

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Liquidity

• Can be traded freely on the stock market
• On 8th November 2006
• 5062000 Units traded 80182080

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Diversification

• Diversify in
• - sector
• - location
• - tenant roster
• The Link
• 180 retail and carpark

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Objective

• The Link REIT invested in retail and car park
  real estate in Hong Kong
• The aim of providing returns to unit holders
  derived from the income thereof
• The Link REIT is to provide unit holders with
  stable distributions per unit
• With the potential for sustainable long-term
  growth of such distributions
• The manager intends to accomplish this objective
  by optimizing the performance and enhancing the
  overall quality
• A large and geographically diversified portfolio
  of real estate assets in Hong Kong through
  various investment and business strategies.

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The Properties

• Hold Hong Kongs largest portfolio of the retail
  properties held by a single owner in term of IFA
• The portfolio comprises 180 properties,
• 149 are integrated retail and car park
  facilities, 2 are standalone retail facilities
• 29 are standalone car park facilities.

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Characteristics of Retail Facilities

• 151 retail facilities
• 86 are located in the New Territories
• 50 are located in Kowloon
• 15 are located on Hong Kong Island.

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Characteristics of Car Park Facilities

• 78 car park facilities
• 101 are located in the New Territories
• 61 are located in Kowloon
• 16 are located on Hong Kong Island

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Return of The Link Vs. GZI REAL Estate
Investment Trust
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Return of The Link
Earning per unit based on profit after taxation, before transactions with unit holders Earning per unit based on profit after taxation, before transactions with unit holders
Profit for the period, before transactions with unit holders HK2,081 Million
Number of units outstanding at the end of the period 2,137,454,000
Earning per unit based on profit after taxation, before transactions with unit holders HK0.97
Distributions
Profit after taxation for the period from 6 September 2005 HK 2,081 Million
Adjustment
Change in fair values of investment properties (HK 19,49 Million)
Defferred taxatoin on change in fair values HK 341 Million
Other non-cash income HK 6 Million
Total Distributable Income for the period from 6 September 2005 HK 467 Million
Distribution per unit 21.81 HK Cent
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Return of GZI REIT

Earnings per Unit HK 4 Cent
Total Distributable Income HK 40,543 K
Distribution per Unit N/A
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Prospect of REIT
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More REITs are coming

• Regal Hotels Intl Holdings Ltd.
• REIT containing 5 hotels
• Henderson Land Dev. Co. Ltd.
• Sunlight REIT

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Properties injected to REITs

• Mainly 2nd to 3rd class non-residential
  properties
• Low rental value
• Grouping of single buildings
• The Link is an exception
• Invest in renewal of properties
• Grouping of various estate areas
• Customers are guaranteed

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Future developments
For REITs

• Asset combination include Mainland properties
• Formation of China focused REITs
• Better quality and quantity of assets

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Future developments
Regulatory Environment

• Low tax rate may not be an incentive
• No tax benefit for REITs
• Restricted to invest in real estate only
• Cannot undergo further risk diversification

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Evaluate a REIT

• Quality of properties
• Expected rate of return
• Dividend policy
• Past performance
• DO NOT only rely on brand names
• DO NOT only belief what the media told you

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Possible threats of REITs investment
Comparison of threats in three real estate
investments
Invest in REITs Direct investment in real estate Invest in listed property leasing company
Agency problem Yes but lower No Yes
Rise in interest rate Yes Yes Yes
Excess supply in real estate market Yes Yes Yes
Fluctuation in Returns Low High Moderate
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Conclusion Do REITs worth to invest in?

• Quality of the properties
• Foreign countries high
• e.g. hotels, hospitals, apartment buildings
• Hong Kong uneven
• e.g. car parks, public housing
• Prevail over foreign countries because of tax
  allowance

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Conclusion Do REITs worth to invest in?

• Long term investment
• stable return
• pension funds
• Not suitable for short run investment
• unit price less likely to change

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Q A
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Section 4 (Group 5)

• 034001 Ray Choi
• 034003 Iris Ho
• 034028 John Au Yeung
• 044002 Joseph Lam
• 043044 Alfred Sit
• The End