Real Estate Investment Trust (REIT) Does a REIT worth to invest? Section 4 (Group 5)

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

What is REIT? managed by professional REIT manager buy or sell REIT through Stock Exchange governed by SFC’s Code and listing rules issued by the Stock Exchange

What is REIT? REIT Dividend

REITs Characteristics Alfred, Sit Wai Hong (043044)

Overview Regular cash inflow Low risk High liquidity Managed by professionals Alfred, Sit Wai Hong (043044)

Firm Business Focus Mainly real estate sector Can’t own significant non-real estate assets Returns: - Dividends - Value appreciation Alfred, Sit Wai Hong (043044)

Dividend Policy At least 90% after tax income The Link: 100% Average : 6-7% Alfred, Sit Wai Hong (043044)

Safe Custody of Properties Managed by licensed manager by SFC The Link: - The Link Management Limited - Facilities are held on trust Alfred, Sit Wai Hong (043044)

Liquidity Can be traded freely on the stock market On 8th November 2006 5062000 Units traded = $80182080 Alfred, Sit Wai Hong (043044)

Diversification Diversify in: - sector - location - tenant roster The Link: 180 retail and carpark Alfred, Sit Wai Hong (043044)

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.

The Properties Hold Hong Kong’s 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.

Characteristics of Retail Facilities 86 are located in the New Territories 50 are located in Kowloon 15 are located on Hong Kong Island.

Characteristics of Car Park Facilities 101 are located in the New Territories 61 are located in Kowloon 16 are located on Hong Kong Island

“GZI REAL Estate Investment Trust” Return of “The Link” Vs. “GZI REAL Estate Investment Trust”

Return of The Link Earning per unit based on profit after taxation, before transactions with unit holders Profit for the period, before transactions with unit holders HK$2,081 Million Number of units outstanding at the end of the period 2,137,454,000 HK$0.97 Distributions Profit after taxation for the period from 6 September 2005 HK$ 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

Return of GZI REIT Earnings per Unit HK 4 Cent Total Distributable Income HK$ 40,543 K Distribution per Unit N/A

Prospect of REIT

More REITs are coming Regal Hotels Int’l Holdings Ltd. REIT containing 5 hotels Henderson Land Dev. Co. Ltd. Sunlight REIT

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

Future developments Asset combination include Mainland properties For REITs Asset combination include Mainland properties Formation of China focused REITs Better quality and quantity of assets

Future developments Low tax rate may not be an incentive 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

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

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 Excess supply in real estate market Fluctuation in Returns Low High Moderate

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

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

Q & A

Section 4 (Group 5) 034001 Ray Choi 034003 Iris Ho 034028 John Au Yeung 044002 Joseph Lam 043044 Alfred Sit The End~