Here are 2 threats that could topple Hui Xian REIT's strong standing

Despite being the top pick among HK/China REITs.

A FY14E distribution yield of 7.2% is forecast for Hui Xian REIT and, together with potential share price upside of 15%, it'll make Hui Xian REIT our top pick among Barclays' four covered HK/China REITs.

According to a research note from Barclays, this is because its price target suggests a total potential 12-month return of 22%.

Hui Xian REIT is Hong Kong's second-largest REIT with a market cap of RMB18.7bn, and at 7.2%, Hui Xian has the highest distribution yield among the five Hong Kong REITs with a market cap above US$1bn.

Relative to the 10-year China bond yield, the current 291bps yield spread is nearly 1.7 SD above its historical average of 223bps.

While a China slowdown remains a macro risk for investors, beyond the headlines Barclays believes there are still pockets of strength, particularly at the asset level.

Here's more from Barclays:

Located in the heart of Beijing, the shopping mall and office of Oriental Plaza contributed 49% and 41% of Hui Xian's net rental income in 1H 2014.

Despite some weakness, office spot rents remain above passing rental levels. We forecast a top-line CAGR of 6.4% over 2014-2016, which should help sustain its 7.2% distribution yield.

Strong balance sheet with gearing at only 9.2%. As of June 2014, Hui Xian's debt-to-total-asset ratio was 9.2%, the lowest among the Hong Kong REITs we cover.

We believe Hui Xian's low gearing provides it with much flexibility on potential acquisitions and also reduces its risk from interest rate increases.

Price target of RMB4.10 implies 22% total return: We value Hui Xian using a dividend discount model up to 2049.

Our RMB4.10 price target implies an FY14E distribution yield of 7.2% and potential share price upside of 15%.

Potential downside risks include: 1) oversupply of hotel inventory causes Hui Xian's hotel profitability to deteriorate; and 2) rising interest rates could result in a lower-than-expected distribution.