Property

Fortune REIT Justina Chiu

Fortune REIT Justina ChiuFortune REIT (F25U) is the first local real estate investment trust listed in Singapore, in which it started trading in 2003. In April 2010, Fortune REIT (00778. HK) became listed in Hong Kong by way of introduction. The aggregate gross floor area possessed by Fortune REIT has since increased from 1 million square meters to 2.45 million square meters as recorded at the end of June 2012. Justina Chiu, Deputy Chief Executive Officer of Fortune REIT, said when she was having an interview with our reporter, that the annual Distribution Yield for 2012 reaches 6.9% as shown by the group’s just-released interim report. Distribution per fund unit climbed by the largest extent in this ninth year of listing. ARA Asset Management (Fortune) Limited is the fund manager of Fortune REIT, which now possesses 16 retail property projects with total floor area reaching 2.45 million square meters and nearly 1,900 parking spaces. Flagship malls of Fortune REIT includes ‘Fortune City One’, ‘Ma On Shan Plaza’, ‘Metro Town’ and ‘Fortune Metropolis’, all of which are retail property projects.

‘Fortune City One’ and ‘Jubilee Square’ are now undergoing asset quality enhancement, a capital investment aiming to boost asset value of projects. As a result of the enhancement, Net Property Income, or NPI, of the two malls has risen by 14.9% and 12.9% year-on-year respectively. The occupancy rate and rental growth on contract renewal of these two malls, have been keeping at 96.5% and above 20% respectively for a long period of time. As such, management of Fortune REIT takes the asset quality enhancement scheme as an indispensable task that enables positive and significant changes at the malls. In order to push up asset value in the long term, Fortune REIT would regularly carry out asset quality enhancement at its properties. It should be noted that the asset quality enhancement scheme requires a certain sum of capital expenditure and affects rental revenue for the short term. According to the scheme, asset quality enhancement would be divided into different phases for large-scale property projects. The first phase takes around four to six months to complete and minimizing impacts on the operations of businesses is the underlying principle. The group has rented out over half of the space at the relevant retail properties before the first phase of asset quality enhancement program is conducted with a view to securing a stable and considerable flow of rental revenue. The group’s revenue for the first half of 2012 factored in the profit contribution from ‘Belvedere Garden’ in Tsuen Wan and ‘Provident Square’ in North Point, two projects acquired in mid-February 2012 with HK$1.25 billion and HK$650 million respectively. The profit contribution from these two newly purchased projects accounted for 11.2% of the first-half profit growth, revealing the two projects are absolutely strong profit drivers.

Chiu emphasized the management has two major requirements in mind when seeking new merger and acquisition targets. First, they would select retail property projects with high occupancy rate and located at districts with busy human traffic. Second, they would choose projects which have potentials to carry out asset quality enhancement. On the other hand, Chiu has rolled out a series of asset and brand values upgrade programs, which drive up brand marketing expenses by 20% annually, intending to put the 16 major malls managed by Fortune REIT under the ‘Fortune Malls’ brand. Meanwhile, she wants to nurture a sense of belonging among the people living in the vicinity of the malls to the “Fortune Malls” brand by organizing large-scale events with themes centering around family at the malls from time to time so as to further boost the already-high service level. She hopes, when people enter the Fortune Malls, they would feel comfortable and content, putting shopping as the second priority and enjoying the warm and homely atmosphere as the top. Recently, ‘SpongeBob’ is in the limelight in certain malls of Fortune REIT, said she, adding she sincerely hopes this tiny yellow SpongeBob can bring unlimited happiness to children and their families and become a lovely member of different families.

No matter you are a wanderer in the malls or a fan of ‘SpongeBob’, you can become an investor of Fortune REIT. So, what are the attractions of investing in the REIT for medium to long terms? Return on real estate investment trust is relatively higher while fund price represents a relatively smaller discount on net asset value. Real estate investment trust uses 90% -100% of rental as dividend and therefore the dividend payout ratio is higher than that of property developer or property leasing equities. From the 2012 first-half results of Fortune REIT, gearing ratio, property leasing rate and distribution per unit were 24.5%, 96.5% and HK15.82 cents respectively. As the distributable revenue amounted to HK$268 million, that means distribution per unit can reach HK15.82 cents, Distribution per unit rose 23.6% yearly and can be translated into an annual distribution ratio of 6.9%. The latest distribution per unit represented the highest in the records of Fortune REIT and far outstripped the return on various investment products aiming to keep the principal intact, including government’s ten-year bonds and products with Hang Seng Sub-indices as underlying assets.