Property firm prospers in testing times
Prosperity Real Estate Investment Trust (Prosperity Reit) reported steady financial results for the year ended December 31, 2011 with revenue increasing by 2 per cent to HK$275.6 million.
The reit says income available for distribution grew by 10.6 per cent. Correspondingly, distribution per unit to unit holders increased by 9.2 per cent.
Its portfolio occupancy rate remained stable at 98.8 per cent, while the average effective unit rent increased from HK$14.67 per square foot to HK$15.05. Prosperity's proactive leasing approach and effective tenant recruitment strategies enabled it to increase its tenant retention rate from 64.5 per cent in 2010 to 66.9 per cent last year.
The reit says its achievements were attributable to management's pragmatic approach in a tough economic climate, which led to a significant reduction in finance costs and a strong rental reversion rate.
Mavis Wong, acting chief executive, says the world economy faced many challenges last year, including the completion of Quantitative Easing II, Greece's sovereign debt crisis and the United States credit rating downgrade.
'These external market uncertainties dampened business sentiment, which weighted on Hong Kong's commercial properties. We are satisfied with the results and will continue to deliver positive results in 2012,' Wong says.
It continued to benefit from the strength of the mainland's foreign trade. 'Large percentages of our tenants are companies focusing on Asian markets, and they have remained relatively resilient amid the volatile market,' she says.
The reit is distributing 100 per cent of its annual distributable income to unit holders. They will receive about 12 HK cents per unit, representing a distribution yield of 8 per cent per unit.
The value of Prosperity's assets reached a record high after a year-on-year increase of 17.8 per cent.
Net asset value per unit also surged to HK$3.29.
Wong says weakening demand from banking sectors reflected a decline in Central office market rentals. But the reit's properties are located in the decentralised area, particularly Kwun Tong and Hung Hom districts. 'Out of the core business district, we were able to achieve a strong rental reversion rate of 14.8 per cent in full year 2011. In 2012, although we have a large expiry profile, it is Prosperity Reit's practice to negotiate leases three to six months before expiry,' she says.
The reit is also benefiting from the strategic locations of its properties. The government plans to redevelop the area around the former Kai Tak airport in Kowloon East into a core business and commercial district. Prosperity, Wong says, is well positioned to leverage the anticipated increase in property prices and rental incomes.
It continued to benefit from stable financing costs achieved by term loan and revolving credit facility agreements that it entered into in 2010, when interest rates were relatively low. Wong says management's unwavering commitment to unit holders has paid off with a healthy cost-to-revenue ratio and a gearing ratio of 23.3 per cent and 25.6 per cent respectively.
Prosperity is seeking acquisition targets. However, present yields for commercial and industrial properties are in the range of 3.5 per cent to 4 per cent, while the reit is delivering a distribution yield of 8 per cent. 'This means a yield-accretive acquisition is difficult,' Wong says.
The company expects Asia's stable fundamentals to cushion the impact of market uncertainty, globally and locally.