Leasing drives growth
Fortune Real Estate Investment Trust announced healthy revenue and net property income for last year, backed by a better portfolio asset performance.
Fortune Reit says revenue grew 8.6 per cent for the year to HK$909.4 million and net property income grew 7.6 per cent to HK$642.1 million.
Justina Chiu, deputy CEO of Fortune Reit, says the growth in revenue is mainly due to better performance from the portfolio of properties that the real estate investment trust managed during the year. The property manager says Fortune City One has demonstrated exceptional growth, with net property income increasing 14.9 per cent from the previous year, after renovations at Fortune City One Plus in September 2010, helping to drive revenue growth. Income available for distribution achieved a record high of HK$442.3 million, up 8.8 per cent from last year.
The distribution per unit (DPU) for the 2011 financial year increased 8 per cent year-on-year to 26.30 HK cents, compared with 24.35 HK cents in 2010, representing a dividend yield of 7 per cent.
Fortune Reit's portfolio of 14 retail properties was appraised at HK$16.39 billion as at December 31, 2011, an increase of 23.2 per cent from HK$13.3 billion a year earlier. The higher valuation reflects Fortune Reit's improved asset performance, while its gearing ratio and aggregate leverage was reduced to 18.8 per cent. Fortune Reit remains one of the lowest geared real estate investment trusts in the region.
Chiu says leasing momentum was robust with the occupancy rate maintained at 97 per cent, despite frictional vacancies due to continuing asset enhancement initiatives (AEI). Rental reversion improved to 15.2 per cent, as passing rent rose 12.2 per cent from last year, reaching an all-time high of HK$32.2 per sqft.
She says that yield-enhancing AEIs were launched at its two largest properties, Fortune City One and Ma On Shan Plaza, last year. The subdivision of a 50,000 sqft space in Ma On Shan Plaza was completed during that time, achieving an impressive return on investment (ROI) of 73 per cent with a capital expenditure of approximately HK$12 million. The AEIs at Fortune City One, which started in October last year, are scheduled to be completed by the end of this year.
'This HK$100 million AEIs project is one of the largest ever within our portfolio, with a target ROI of 15 per cent,' Chiu says. 'The mall will be transformed into a more refreshing ambience and a more efficient layout, offering a more welcoming retail environment for the customers.'
Chiu adds that the real estate manager has refinanced Fortune Reit's only loan well ahead of its maturity with more favourable terms in April last year. The interest margin under the new facilities of HK$3.8 billion was lowered to 0.91 per cent per annum over Hibor. Maturity of the loan was extended to April 2016, with the revolving credit facility extended to HK$970 million. This refinancing exercise provides further funding flexibility for acquisition opportunities and yield-enhancing AEIs.
On December 28 last year, Fortune Reit announced the proposed acquisition of two retail properties, Belvedere Square and Provident Square. The properties have enlarged Fortune Reit's portfolio by 23 per cent, while Provident Square will be Fortune Reit's first foray into Hong Kong Island. Fully funded by debt, the acquisition will provide immediate yield accretion to unit holders. The acquisition is expected to be completed by March 28.
'We are pleased to have secured the approval of 100 per cent of the unit holders who voted for the acquisition at the recent EGM,' Chiu says. 'With this transaction, we are now firing up all three engines of our growth strategy; comprising active lease management, asset enhancements and yield-accretive acquisitions.'
Fortune Reit is a real estate investment trust constituted by a Trust Deed entered into on July 4, 2003 between ARA Asset Management (Fortune), as the manager of Fortune Reit, and HSBC Institutional Trust Services (Singapore), as the trustee of Fortune Reit. It was listed on the Singapore Exchange Securities Trading and the Hong Kong stock exchange on August 12, 2003 and April 20, 2010 respectively.