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(Split) REITs - Tradable v/s Non-Tradable

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  1. #11

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    I realize this may not be a fashionable approach to property valuation in Hong Kong
    Exactly why I wanted to bring this up!

    From Wiki

    REITs have been in existence in Hong Kong since 2005, when The Link REIT was launched by the Hong Kong Housing Authority on behalf of the Government. Since 2005, there have been 7 REIT listings as at July 2007, most of which, including Sunlight REIT have not enjoyed success because of low yield. Except for The Link and Regal Real Estate Investment Trust, share prices of all but one are significantly below initial public offering (IPO) price. Hong Kong issuers' use of financial engineering (interest rate swaps) to improve initial yields has also been cited as having reduced investors' interest[20]
    This implies a level of valuation which is not correlated to either the valuations of the assets or their income generating capacity? Value of property and the income has gone up significantly.

    May be Wiki is messing with me.

  2. #12

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    Quote Originally Posted by shri:
    I've not studied REITs in any amount of detail - but if I own say x shares of Link REIT, can I go to a housing estate and say "I own those three square feet of the shopping center"?

    I thought with many of these REITS are structured in a way that the physical property is held by another outfit and the REIT licenses the use of those properties from the owner and distributes the profit generated from the property (if I remember 90% payout ratio on profits).

    So, you're not technically investing in the future value of the property, you're investing in the income generating capabilities of the property.

    If the property is not income generating can you base the share value on the zero-income-producing asset value?

    Am I missing something? or just being a bit too picky?
    ^^ not that i know of.

    - Reits are trusts, works just like a normal fund/unit trust, as in, you own units of it but you generally cannot ask for it to be converted into the underlying holdings.
    - Reits generally hold the property portfolio they invest in. They have legal titles to it, directly or via subsidiaries. They can raise financing on the property portfoilo.
    - Each Reit has a NAV quoted. These NAV only comes about due to the asset they own. When property prices go up, the NAV should increase as well according to the valuations.
    - 90% payout ratio in Reits usually tied to the taxation benefit. It applies in Singapore, but not sure of the benefit in HK since all dividend are tax exempted.

    Why most people prefer direct property investment versus
    >> Leverage >> direct investment allows for 70~80~90% leverage whereas in Reits the internal leverage is usually just 30~40%. If you add external leverage (i.e. margin financing) then you can bump up the ratio but the risk is in margin calls.

    And maybe because of that, or for some other reasons, Reits in Asia tend to be priced at much lower valuation on their property portfolio versus a direct investment into the property, that give rise to the higher yield that one can get in Reits versus rental of a direct property
    shri and Needamaid like this.