Top 3 Hong Kong REITs That Made You Money If You Invested From Their IPOs
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Why Consider The Hong Kong REITs Market?
Owing to a scarcity of land and strong demand, Hong Kong is considered one of the world’s most expensive cities to own property.
However, this also means that Hong Kong is also one of the best places to invest in property. But how much is one residential property in Hong Kong? For a one-bedroom apartment in the city, it can easily cost US$2 million!
If you’re rich, you can probably afford to buy and own a few residential properties in Hong Kong to collect a stable rental income.
But if you want to invest in commercial assets like office buildings, shopping malls, or hotels, it would be a lot harder. Unless you’re a rich tycoon like Li Ka Shing or Lee Shau-kee, it’d probably be out of reach for the typical investor as one commercial building can easily cost a few hundred million to a few billion Hong Kong dollars.
However, that doesn’t mean that you can’t enjoy the benefits of sticky tenants and a prime location that a Hong Kong commercial asset can offer you.
With REITs, it is possible to own a stake in multibillion-dollar commercial properties in Hong Kong and earn a slice of the rental pie. That’s why we’re such a big fan of REITs when it comes to building stable and growing passive dividend income.
Similar to Singapore and Malaysia, Hong Kong has its own REIT market that attracts investors from all over the world.
At the time of writing, there are ten listed Hong Kong REITs for investors to choose from. Although the number is fewer than Singapore (33 REITs and 6 stapled trusts) and Malaysia (17 REITs and 1 stapled trust), the total market cap of Hong Kong REITs is US$35 billion – more than three times larger than the total market cap of Malaysian REITs at US$10 billion.
How Are We Valuing The Hong Kong REITs Market?
Just like what we did with the calculation of investment returns for S-REITs and M-REITs since their IPOs, we are going to do the same for Hong Kong REITs that have been listed for at least 10 years and evaluate their performance.
Once again, we assume that David (a fictional character) invests HK$10,000 in each Hong Kong REIT from the day it listed.
Since David is a hard-core income investor, he doesn’t want to fork out any money to subscribe to any rights (if any) and is prepared for any share dilution. Let’s also assume that he neglects to sell his nil-paid rights from which he can make a profit from.
For example, if David invested in Prosperity REIT during its IPO, his initial investment of HK$10,000 would’ve grown to HK$14,600 (+46% in capital gains) by 31 Jan 2019.
If we include the dividends he’s received over the years, David would have made even more in Prosperity REIT as his initial investment of HK$10,000 would have grown to $22,200 (+122% in capital gains and dividends). Overall, his total annualised return in Prosperity REIT from 2005 to 2019 is 5.85%.
(capital appreciation + distributions)
|Prosperity REIT||Year||Price||Amount||31 Jan 2019||Total||CAGR|
|Dec 2005||HKD 2.16||HKD 1.63||76%||HKD 3.15||46%||HKD 2.62||122%||5.85%|
If David invested HK$100,000, then his investment would’ve grown to HK$222,000.
Basically, the more money he invests, the more he makes. And the longer he holds, the more dividends he’s going to receive.
After Investing In Hong Kong REITs For 10 Years
So after investing for more than ten years, here are the top three best-performing Hong Kong REITs for David.
To simplify things, we’ve excluded brokerage costs, currency exchange gains/losses, and taxes that might be applicable to foreign investors.
1. Link REIT (annualised return: 18.03%)
And the most prosperous REIT in Hong Kong is not Prosperity REIT but… Link REIT. Since 2005, every HK$10,000 investment in Link REIT would’ve turned into HK$83,500. Including dividends, every HK$10,000 invested would cumulatively become HK$101,900!
2. Sunlight REIT (annualised return: 9.04%)
Since 2006, every HK$10,000 investment in Sunlight REIT would’ve turned into HK$21,000. Including dividends, every HK$10,000 would cumulatively become HK$30,800.
3. Yuexiu REIT (annualised return: 7.89%)
Since 2005, every HK$10,000 investment in Yuexiu REIT would’ve turned into HK$17,700. Including dividends, every HK$10,000 would cumulatively become HK$29,000.
In summary, here is David’s overall performance:
|IPO||Distributions||Share Price||Return (capital appreciation + distributions)|
|Year||Price||Amount||31 Jan 2019||Total||CAGR|
|Link REIT||Nov 2005||HKD 10.30||HKD 18.95||184%||HKD 86||735%||HKD 94.65||919%||18.03%|
|Sunlight REIT||Dec 2006||HKD 2.60||HKD 2,.55||98%||HKD 5.46||110%||HKD 5.41||208%||9.04%|
|Yuexiu REIT||Dec 2005||HKD 3.08||HKD 3.47||113%||HKD 5.44||77%||HKD 5.83||190%||7.89%|
|Fortune REIT*||Aug 2003||HKD 4.75||HKD 5.50||116%||HKD 9.69||104%||HKD 10.44||220%||7.54%|
|Prosperity REIT||Dec 2005||HKD 2.16||HKD 1.63||76%||HKD 3.15||46%||HKD 2.62||122%||5.85%|
|Champion REIT||May 2006||HKD 5.10||HKD 2.78||54%||HKD 5.95||17%||HKD 3.63||71%||4.22%|
|Regal REIT||Mar 2007||HKD 2.68||HKD 1.78||66%||HKD 2.37||-12%||HKD 1.47||55%||3.71%|
*Fortune REIT was dually listed on the Hong Kong Stock Exchange on 20 April 2010
The Fifth Perspective
Similar to many Singapore and Malaysian REITs, Hong Kong REITs have also delivered decent annualised returns.
It is important to remember that David didn’t need to come up with any additional capital to subscribe to any right issues – the table above is his actual score.
However, if he had subscribed to them (including excess rights), he would have made more money since rights are usually sold at a discount. Most importantly, David continues to receive regular quarterly dividends from his investments in Hong Kong REITs rain or shine.
As you can see, REITs remain a great option for anyone who wants to build a steady and consistent stream of passive income.
However, please note that you shouldn’t buy or avoid a REIT just based on the data above as past performance is not necessarily indicative of future results. It’s highly important to have a proper investment process to help you identify and invest in the right REITs that will give you a steady stream of passive income and capital gains down the road.
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