1. Econ 310 Financial Institutions in Hong Kong
Group 5
Real Estate Investment Trusts

2. The Development of REITs in Hong Kong—Is REITs are appeal to Hong Kong investors?

3. Objectives
To provide a clear picture of development of REITs in Hong Kong.
To see whether REITs can appeal to Hong Kong investors.
Ivy

4. Agenda Introduction of REITs Background of REITs 3. REITs in Hong Kong
2.1 What is REITs 2.2 History of REITs 2.3 Types of REITs
3. REITs in Hong Kong
3.1 History of REITs in Hong Kong
3.2 Factors contributing to REIT
Ivy

5. 4. The Main Considerations of Investors
4.1 Benefits of Investing REITs 4.2 Quality of the Assets 4.3 Management of Assets 4.4 Possible Risks of Investing REITs
5. Example of REITs in Hong Kong: the LINK REIT
6. Conclusion
Ivy

6. Introduction
Ivy

7. Introduction
The attraction of Real Estate Investment Trusts (REITs) has been sweeping over the world.
According to REITs Index in Morgan Stanley (MSCI)
at the end of 1999  288 Points to
in the February of 2005 885 Points.
200% in these five years.
Though Hong Kong is an international financial market, the development of REITs is just on the introduction stage with only one REIT-- The Link
Ivy

8. Background of REITs
Ivy

9. What is REITs?
A REIT is an investment that, through an initial public offering (IPO), investing in real property.
It normally distributes all or most all of its profits to investors as dividends on a regular basis.
REITs can be performing either as a company or as a unit trust.
They can either be self-managed or appoint a third party management company to manage their investments.
Ivy

10. History of REITs The origins of REIT was in 1880s
This tax advantage was reversed in the 1930s, and all passive investments were taxed first at the corporate level and later taxed as a part of individual incomes.
President Eisenhower signed the 1960 REIT tax provision.
REIT investment increased throughout the 1980s.
The Tax Reform Act of 1986 allowed REITs to manage their properties directly
In 1993 REIT investment barriers to pension funds were eliminated.
Today, there are more than 193 publicly traded REITs operating in the United States and their assets total over $500 billion.
However, REITs are relatively a new investment classes in the region of Asia.
Ivy

11. Types of REITs
The REITs industry has a diverse profile, which offers many alternative investment opportunities to investors.
Most of REITs are identified by their property types or by geographical.
Generally, there are typically three broad types of REITs: Equity REITs, Mortgage REITs and Hybrid REITs.
Ivy

12. Equity REITs Equity REITs own and operate income-producing real estate
Obtain the revenue mainly from the renting of these properties.
Most of the REITs in the market is the Equity REIT
Ivy

13. Mortgage REITs
Focus on providing loans directly to real estate owners and operators.
Mortgage REITs would extend credit indirectly through the acquisition of loans or mortgage-backed securities
Ivy

14. Hybrid REITs
This type of REITs refers to an investment strategy that combines those of an equity REIT and a mortgage REIT
Therefore, this type of REITs may invest in a range of assets, including physical properties, mortgages or other types of related financial instruments.
Ivy

15. M.C. Q. Typically, how many types of REIT are there? 2 3 4 5
None of the above
Ivy

16. History of REITs in HK The Code on Unit Trusts and Mutual Funds:
Authorized funds are prohibited from industry in any type of real estate (including building) or interest in real estates.
Development of REITs is prohibited
Patrick

17. History of REITs in HK In 2003
The Securities and Futures Commission begins to conduct an in-depth research on the regulatory experience
the United States, Singapore, Australia, Japan and Korea
Patrick

18. History of REITs in HK In March 2004
The Code on Real Estate Investment Trusts is proposed
The foundation of REITs trading practice in Hong Kong financial markets
Patrick

19. History of REITs in HK 領匯房地產投資信託基金 泓富房地產投資信託基金 越秀房地產投資信託基金
Patrick

20. Factors contributing to REIT development
1. A focused investment strategy
provide a stable and a certain investment target for investors
only invests in property business such as rent
2. Scalable investment in a diversified portfolio
Invests in a portfolio of balanced, diversified and large-scale property business
Small investors are need not to contribute a large sum of capital
Patrick

21. Factors contributing to REIT development
3. Accessibility and tradability
Can be traded on major board of stock exchanges
Corporation information can be accessed
4. Tax transparency
Dividend distribution will not be taxed at the REITs level but taxed at the individual level
Clear and transparent policy avoids duplication and vagueness of taxation
Patrick

22. Factors contributing to REIT development
5. Transparency of REITs
Information of REITs corporations should provide sufficient details to investors.
Builds investors’ confidence
6. Attractive yields
Profit of REITs is earned from rental income
Much a stable income than profits of property business which rely on land and property sale
Patrick

23. MC
Which one is/are the contributing factor(s) of REITs in foreign countries?
( a ) Scalable investment in a diversified portfolio
( b ) Accessibility and tradability
( c ) Transparency of REITs
( d ) Taxation Vagueness
( e ) a , b & c

24. The Main Considerations of Investors
Vicky

25. The Attractions of REITs
Return Dividend
- Pay at least 90 percent of their taxable income to shareholders
- Form of dividends yield each year
Vicky

26. - Dividends yield is the main index of REITs return income
Singapore - 6% or above
Australia - 7 to 8.5%
- United States’ Treasury bonds also can be an index
- Attractive if REITs’ return is higher than Treasury 3 %
Vicky

27. Diversification Portfolio
- Reducing risk
- Real estate markets fluctuate by location and property type
- Investors decide to buy REIT properly diversified
Vicky

28. The Quality of Assets
- Main factor that affecting the value adding of REITs
- Increase the quality of assets: - rearranged the combination of store revamp
- adept in use up all area
- Demand of commercial buildings
Rate of rent
Vicky

29. M.C.
How much percentage must pay of their taxable income to shareholders in the form of dividends yield each year?
At least 85%
99%
At least 90%
100%
None of the above
Vicky

30. The management of assets
Profitability and assets appreciation are closely associated to the manager’s ability
Understand the track record of the managers and their team

31. Possible Risks of Investing REITS Performance of Property Market
total return of REIT is subject to the performance of the property market
Economic Downturn: market price decreases
underlying properties in value
return from REIT may

32. Possible Risks of Investing REITS Climbing of Interest Rates
low interest rate environment : investing REIT is relative more attractive
high interest rate environment : REIT less attractive and even less profitable
because: higher opportunity cost

33. Possible Risks of Investing REITS Potential Political Factors
The LINK’s first plan of listing was hindered by indictment
Cannot ensure no similar indictment again
Affect the trust unit price

34. MC Time Again! Which of the follow risk is not mentioned?
Potential Political Risk
Poor performance of Property Market
Climbing of interest rate
Possible Disasters

35. Example of REITs in Hong Kong
The LINK
has been listed on the Hong Kong Stock Exchange on 25 November, 2005
first REITs in Hong Kong
180 retail and car park facilities
Wilson

36. Example of REITs in Hong Kong
The Characteristics of The Link
required to pay the dividends
not less than 90% of the total distributable income
yield rate of The Link is around 6.1%
Wilson

37. Example of REITs in Hong Kong
Diversification Portfolio
there are 180 retail and car park facilities
approximately 960,000 sq.m of retail space and around 79,000 car park spaces
well-diversified geographically
minimal dependency on any single property
Wilson

38. Example of REITs in Hong Kong
Management of Assets
invest in sustainable-income producing properties in Hong Kong
which are primarily used for retail and car park purposes
focus on long-term income and capital growth.
Wilson

39. Example of REITs in Hong Kong
Possible Risks of Investing REITs
Occurrence of the Catastrophe
outbreak of SARS
affected the regional economy in Asia and Hong Kong
beware the effects of Bird Flu
occurrence of SARS or other high infective diseases a huge blow to Hong Kong economy
Wilson

40. Example of REITs in Hong Kong
Climbing of Interest
the higher the interest rate  the lesser the attraction of the REITs
higher attraction in other securities
like treasury bond and some good credit rating corporate bonds
lower the attraction of the REITs
Wilson

41. Example of REITs in Hong Kong
Potential Political Factors
listing process was completely ceased
The previous indictment from Ms. Lo Sau Lan
Link states that
there would be further indictment challenges.
can’t ensure the market price will not be affected by the indictments
Wilson

42. The Price Trend of The Links from 25/11 to 16/12
Wilson

43. The Argumentative Issue since the Listing Date
Can the assets in The Links be sold out?
Can the Manager in The Links be changed?
Can the Trustee of The Links be changed?
Can The Links take part in high risk investment activities?

44. Members List Chan Ching Yi, Ivy 033002 Chu Yik King, Vicky 033020
Tai Ming Yu, Patrick
Ma Chun Wai, Wilson
Wong Ching Ming, Karen

45. Thank you for paying attention~~
The End
Thank you for paying attention~~