Strong retail sales in Hong Kong have helped shopping-mall focused Fortune Real Estate Investment Trust record an 8 per cent increase in revenue to HK$446.8 million in the first half of this year compared with the same period last year. Fortune Reit's net property income also increased by 5.7 per cent year-on-year to HK$319.5 million, according to the trust manager, ARA Asset Management (Fortune). 'The 8 per cent year-on-year growth in revenue is a historical high for Fortune Reit since 2003,' says Justina Chiu, deputy CEO of ARA. 'Thanks to the robust retail market in Hong Kong, tenants in our shopping malls have enjoyed strong sales. Overall occupancy rate of the malls in our portfolio has climbed to 98.1 per cent as of June 2011. Many of them have 100 per cent occupancy. We have had good lease renewals with increased rents. The rental reversion for renewals was 13.8 per cent for the first half of 2011. It is a major contributor to the revenue growth.' Tenants such as real estate agents and banks have had the strongest business performances and their rents have gone up significantly after lease renewals, she says. The portfolio passing rent rose by 10.3 per cent from a year ago to HK$30.3 per square foot, the property manager says. Meanwhile, the overall performance of the City One Sha Tin property has improved significantly since the reopening of the Ngan Shing Commercial Centre in September last year, Chiu adds. 'The asset enhancement initiative [AEI] at Ngan Shing began in the second quarter and was completed in September. Even before the AEI was over, tenants had already been committed to 90 per cent of the available retail space. The mall was fully occupied when it was reopened.' The income available for distribution is HK$214.8 million, a 5 per cent increase from the HK$204.6 million for the corresponding period last year. Interim distribution per unit for the first half is HK$0.128, representing a 4.3 per cent growth and an annualised distribution yield of 6.7 per cent. Fortune Reit was constituted by a trust deed entered into on July 4, 2003, made between its manager ARA and HSBC Institutional Trust Services (Singapore) as the trustee of Fortune Reit. Fortune Reit was listed on the Singapore Exchange Securities Trading and the Hong Kong stock exchange on August 12, 2003 and April 20, 2010 respectively. Fortune Reit's portfolio comprises of 14 retail properties in Kowloon and the New Territories. Its total retail space is approximately 2 million sqft and the total number of parking spaces exceeds 1,660. Retail properties of Fortune Reit were appraised at a valuation of HK$15.69 billion as of June 30 this year. It represents an 18 per cent increase over the end of last year. The higher valuation was attributed to Fortune Reit's improved asset performance and reduction in capitalisation rates. The gearing ratio went down to 18.1 per cent. 'It is among the lowest in reits in Hong Kong,' Chiu says. 'We are dual-listed in Hong Kong and Singapore, and the gearing limit in Singapore is 35 per cent. Based on the gap in gearing limits between 18.1 per cent and 35 per cent, our debt headroom is HK$4.3 billion.' ARA successfully refinanced Fortune Reit's entire loan facilities of HK$3.1 billion under more favourable terms in April this year. The new facilities, with an aggregate principal amount of HK$3.8 billion, comprising of a HK$2.83 billion term loan facility and a HK$970 million revolving credit facility, bear an interest margin of 0.91 per cent per annum over the Hong Kong Interbank Offered Rate (Hibor). 'The new facilities provide for a five-year loan term, effectively extending Fortune Reit's loan maturity to April 11, 2016. The previous loan would have matured on April 5, 2013,' Chiu notes. 'As a result of the low interest margin, there were immediate interest savings compared to the previous loan, which was at 2 per cent per annum over Hibor. The enhanced revolving credit facility also provides flexibility for potential acquisition opportunities and value-added AEIs in the pipeline.' Fortune Reit will begin the AEI at Fortune City One this month and completion is expected to be the end of next year. 'We will work on the AEI in phases to maintain the income stability,' she says. 'City One's AEI will cost around HK$100 million. All our AEIs have exceeded the 15 per cent target return on investment.'