Jake's View | A reit one way to fund a third runway, but it's unlikely to be accepted

I have the answer to funding of the new third runway at the airport. It's a simple idea, won't cost the taxpayer a dollar and we can still include all the fancy bits that will help keep pink dolphins pink.

What we shall do is take the ancillary income of the airport and float it on the stock market as a real estate investment trust (reit). It would yield easily enough money to pay for the luxury version of the third runway with a good dollop of cash left over.

To see how it could be so, just look at the table taken from the airport's latest accounts. Retail licences and advertising revenue are by far the largest component of revenue. That's the maze you have to traverse to get to your flight, shops full of overpriced things you would probably wouldn't buy, but are irresistible to the cousins across the border.

Now add the airside service support franchises. These provide a very consistent stream of income and there is no reason that we cannot capitalise them and include them in our reit.

I don't know what other terminal commercial revenue comprises but it's commercial and so in the pot it goes. Finally, there is real estate revenue. It's not explained, but I assume this item comprises net rental income, not development profits. It's reit material.

We are now at an annual revenue stream of HK$7.48 billion. The interesting thing is that there are almost no costs to deduct. I suppose we could take in amortisation on the portion of the terminal building occupied by the shops but that's small. We are really looking at net revenue.

Now let's float all this in a reit that we advertise as yielding 5 per cent a year. It would value this income stream at just a sneeze short of HK$150 billion and HK$130 billion is the maximum figure anyone has yet proposed for construction of that third runway.