Frequently Asked Questions 
31/08/2009 
 

Chapter 6 Products - Securities Market

6.11

Real Estate Investment Trust (REIT)


6.11.1    

What is a REIT?

A REIT is a collective investment scheme that aims to deliver a source of recurrent income to investors through focused investment in a portfolio of income-generating properties such as shopping malls, offices, hotels and service apartments. At least 90 per cent of its net income after tax is paid to investors in the form of dividends at regular intervals. REIT are mainly regulated by the Securities and Futures Commission (SFC) and must be authorised by the SFC before they can be listed on the Stock Exchange. All REIT listed on the Exchange must meet the general obligations and price-sensitive information disclosure requirements under the Listing Rules, and address any Exchange enquiry about unusual price/turnover movement. Besides, investors should note that the amount available for distribution will be adjusted for losses/gains from real estate revaluation or disposal.

 

6.11.2

What are the major differences between REIT and property stocks?

A REIT has a well defined investment policy and invests primarily in income-generating properties, while a property company is not restricted to doing business in property investment and property development.

According to existing SFC regulations, the dividend payout ratio of a REIT has to be at least 90 per cent, while the dividend policy of a property company may change from time to time. A REIT may borrow up to 45 per cent of its gross asset value, while a property company may borrow more.

Besides, a property stock is essentially a company, while a REIT is a trust. To ensure proper checks and balances, a REIT must appoint an independent trustee to oversee its operation of the safekeeping of its assets for unit holders.

 

6.11.3

What risk factors should be considered before investing in REIT?

The total return of REIT is subject to the performance of the property market.  The unit price of a REIT may go down if its properties drop in value.  Also, dividends may not be paid if the REIT reports an operating loss.

When deciding to invest in a REIT, investors should not simply look at the expected yield but also consider the concentration, quality and length of its property leases.  In general, the fewer and smaller the properties in a REIT, the greater the investment risk.  Besides, a shorter lease may imply more rapid turnover of tenants and less stable rental income.

Investors should refer to individual REITs' listing documents and announcements for details. The documents can be found at the "Listed Company Information" section of the HKEXnews website. Investors may also consult their brokers or investment advisers for details.

 

For further details, please refer to “Real Estate Investment Trust” under the “Products & Services” section of the HKEX website.