Strategy leads to record profit

PUBLISHED : Monday, 06 August, 2012, 12:00am
UPDATED : Wednesday, 15 August, 2012, 11:04pm


Profit at Fortune Real Estate Investment Trust (Fortune REIT) was up a record 20.3 per cent to HK$537.4 million in the first half of this year compared with the same period a year ago, as its growth strategy continued to deliver results.

Net property income rose 19.6 per cent to HK$382.1 million during the same period, while income available for distribution was up by 24.9 per cent to HK$268.3 million.

It is the strongest growth the investment trust, which holds a portfolio of 16 retail properties in Hong Kong, has seen.

Distribution per unit was 15.82 HK cents, an increase of 23.6 per cent compared with the first half of last year. It represents an annualised distribution yield of 6.9 per cent.

'It's the strongest growth we have had since listing in 2003,' explains Justina Chiu, deputy CEO at ARA Asset Management (Fortune), which manages the Fortune REIT.

'We hope to keep up the growth momentum ... because we have done quite well for the first half, the outlook [for the year] looks quite stable.'

She attributes the record numbers to three main areas - organic growth, asset enhancing initiatives and the success of recent acquisitions.

In terms of organic growth, rental reversions for renewals remained strong at 20.6 per cent during the first half of this year, as portfolio occupancy stood at 96.5 per cent by the end of June.

As Chiu explains, the investment trust is not as prone as other property investments to vast swings in rentals.

'For our kind of portfolio, it tends to remain quite stable,' she says. 'Rental reversions are usually 10 to 15 per cent on average.'

Asset-enhancing initiatives included sub-dividing the investment trust's Ma On Shan Plaza, the second largest property in the portfolio.

This involved downsizing a 50,000 sq ft Chinese restaurant into more retail and food and beverage outlets.

'We invested around HK$12 million on the project, and the return was about 17 per cent,' Chiu says.

Net property income was up 20.7 per cent year-on-year.

At Fortune City One, the first phase of a renovation that began in October last year has been completed and the remaining phases are scheduled to be completed by the end of this year. The investment trust anticipates a return on investment of at least 15 per cent for the project.

On the acquisitions front, Fortune REIT in February completed the purchase of Belvedere Square and Provident Square from subsidiaries of Cheung Kong (Holdings) and Hutchison Whampoa, and an independent third party for HK$1.93 billion.

The two properties accounted for about 11.2 per cent of the revenue increase during the first six months of this year.

Provident Square saw its occupancy boosted to 99.6 per cent by the end of June compared with 92.3 per cent at the end of September, 2011.

Fortune REIT's 16 retail properties were valued at HK$19.26 billion by the end of June, an increase of 17.7 per cent from the valuation recorded at the end of December last year.

Its portfolio comprises about 2.45 million sq ft of retail space and 1,989 car parking lots. Other retail properties within the portfolio include Fortune City One, Metro Town, Caribbean Square, Tsing Yi Square and Rhine Avenue.

These properties house tenants from a diverse mix - from supermarkets and banks to real estate agents and education providers.

Hong Kong's retail sector has remained relatively robust despite a slight moderation of the city's economy in the first quarter of the year.

Against the backdrop of global economic uncertainty, Chiu nevertheless expects growth to remain stable.

'Retail sales are slowing down a bit, but consumer staples are growing quite strong,' she explains, with supermarkets in particular posting impressive results.

'Right now we are less affected or the least affected sector out of all the property sectors ... Housing estate retail is probably the most resilient one,' Chiu notes.

The investment trust is on the lookout for properties to add to its portfolio, Chiu adds. 'We are continuing to look for opportunities. At the moment in a low interest rate environment we are in a good position, our balance sheet is quite strong.'

The focus would be on finding Hong Kong retail properties which would best fit into the existing portfolio, she says.