REITs Outperform Popular Real Estate Developer Stocks

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

August 2012

It’s a matter of financial freedom

We have utilized the new (launched in July 2012) Total Return tool offered by https://webb-site.com to compare the total returns of several Hong Kong-based REITs (Real Estate Investment Trusts) and two popular real estate conglomerate stocks, Cheung Kong Holdings and Sun Hung Kai Properties.

The result upfront for the busy or impatient readers = the REITs investigated here outperform the two popular real estate stocks mentioned above. Note we are talking about total returns which include note just stock price movements up or down but also dividends, bonus warrants, and the like, and such are assumed to be reinvested as well. For methodology and details, please refer to the relevant section in Webb-site. The period studied starts from November 2007 to August 2012.

Busy bodies may leave now.

Out of curiosity, we have also calculated the volatility of the various stock price movements during the period with a view to gauge the riskiness of the underlying stocks. Return and risk go together, don’t they?

Chart 1: Total Return%

The REITs as a group outperform the two selected real estate developer stocks. They also beat another popular stock, the global HSBC bank, which is still a favorite in town. In short, the REITs produce a positive return while the non-REITs induce losses.

Among the REITs, one stands out exceedingly, namely the LINK REIT. Then there are a cluster of runner-ups consisting Yue Xia, Prosperity, and Sunlight. There are two laggards; Champion and Regal. Refer to the chart and table below for the total return figures.

 Chart 2: Return and Risk

Technically, the X-axis represents the total return percentages while the Y-axis reflects stock price volatility which is deemed a risk measurement. Obviously, it would be nice to have a stock which goes to the far right on the horizontal X-axis and as low as possible on the vertical Y-axis i.e. high return yet low risk.

However, none of the stocks herein fit exactly this bill. Nonetheless, this does not mean there is no or little choice. Look closely and two of the stocks stand out from the rest: Sunlight REIT and the LINK REIT.

In terms of total return, the LINK takes first place while Sunlight occupies the second. However, the LINK has a higher stock price volatility level, i.e. riskier, than Sunlight. And collectively these two stocks outperform the rest during the period. Not only do the rest trace behind them in terms of return, a few even come with higher volatilities, not to mention the two developer stocks being in red. 

Contemplation

While there is no guarantee that past performance will continue in future, the past performance demonstrates that REITs could be a viable investment option, notwithstanding the hiccups during IPOs or less than sociable images.

Disclosure: your humble author owns some REIT stocks.

Notes: The article and/or content contained herein are for general reference only and are not meant to substitute proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.    

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