The Hong Kong government has urged investors to take a cautious approach to investing into new real estate investment trust (REIT) companies following a period of intense speculation and conjecture surrounding future REIT launches which has led to volatility in the markets.
In the Securities and Futures Commission's regular 'Dr Wise' column, entitled "Danger in Jumping on the Bandwagon," the SFC noted "with concern" many media reports relating to both listed and potential REITS.
Some reports have provided details on the particulars of the assets, their valuations and timing for the authorisation of the REITs, while others talked about future business plans, and acquisition and disposal potential of currently listed REITs.
However, according to the SFC, the news items have "engendered market speculation," resulting in substantial increases in both share and unit price, and turnover in the shares of the companies or units in the REITs.
The commission said some of the news may be unfounded speculation, while others may purely be preliminary plans that are subject to uncertainties, such as prevailing market conditions and commercial considerations.
The SFC went on to caution that REIT initial public offerings and many other transactions relating to REITs are subject to prior regulatory approvals and unitholders' approvals.
"Therefore, investors should always exercise caution in dealing in the shares of the companies or units of the REITs," the SFC stated.
The commission added that:
"Before making an investment decision, they should check if the company has officially announced its REIT listing plan and what the management said about the plan.
"There are certain requirements in the Listing Rules that the company has to meet in listing its assets through a REIT, shareholders' approval may be required.
"They must not act on pure speculation of a plan to list a REIT, or to inject assets into a REIT. Even an announcement of a plan or submission of an application with the commission does not mean it will be approved.
"Only those applications that satisfy the relevant regulatory requirements will be authorised. The REIT managers must be licensed by the commission, and only those who satisfy the criteria laid down by the commission will be licensed.
"Investors should understand what is left in the listed company as a result of the sale of properties into a REIT and how the management is going to use the proceeds received from the sale of the properties.
"They should refer to the latest annual report to find out information on the properties proposed to be sold to a REIT to see if such information tallies with that reported in the news media or in announcements."
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