Fortune – BT

Fortune Reit eyes 2 assets for HK$1.9b

Purchases will raise gross rentable area of retail portfolio by 23%

FORTUNE Real Estate Investment Trust (Fortune Reit) is looking to acquire two retail properties in Hong Kong for a total consideration of HK$1.9 billion (S$319 million).

It expects the purchases to be yield-accretive. But it will need unitholders’ nod for the transactions, as its sponsor Cheung Kong and Cheung Kong associate Hutchison Whampoa have interests in the two assets. The relevant interested parties will abstain from voting.

Independent financial adviser CIMB has backed the proposed deals, saying that they are fair and reasonable, and in the interests of Fortune Reit and its unitholders.

The total consideration of HK$1.9 billion is below the respective valuations (as at Sept 30, 2011) of HK$1.98 billion and HK$2.02 billion by independent valuers Knight Frank and Savills.

Fortune will have to fork out another HK$49 million in fees and expenses for the acquisitions, raising the total cost of the acquisition to HK$1.949 billion.

Belvedere Garden Property at Tsuen Wan comes with a price tag of HK$1.25 billion, while Provident Centre Property at North Point costs HK$650 million. They will increase the gross rentable area of Fortune Reit’s retail portfolio by some 23 per cent to 2.4 million sq ft.

Fortune Reit has no plans to raise new equity – it will fund the HK$1.9 billion using both debt and internal funds. Its aggregate leverage, at 20.1 per cent as at Sept 30, is expected to go up to around 26.3 per cent immediately after the transactions.

Fortune Reit believes that there will be yield accretion from the deals. The two properties generated a net property income yield of 4.2 per cent for the year ended Dec 31, 2010 – higher than the yield of 3.9 per cent from its existing 14 properties.

It estimated that if it had owned the properties since Jan 1 this year, its distribution per unit for the six months ended June 30 would have been 6.7 per cent higher, at 13.66 HK cents.

But Fortune Reit needs unitholders’ approval to proceed with the deals, which involve interested parties. Cheung Kong’s aggregate indirect interest in the Reit is 31.3 per cent, and Cheung Kong also owns around 49.9 per cent of Hutchison Whampoa.

Fortune Reit will hold an extraordinary general meeting (EGM) on Jan 19 next year to seek unitholders’ consent for the acquisitions. It will also ask for authorisation for certain continuing connected party transactions between the Reit and parties linked to Cheung Kong or the Reit manager.

Independent financial adviser CIMB advised the independent board committee and audit committee of Fortune Reit’s manager to recommend that independent unitholders vote in favour of the EGM resolutions.

The transactions are at arm’s length and are on normal commercial terms, CIMB said. They are also fair and reasonable, and are in the interests of Fortune Reit, independent unitholders, and unitholders as a whole, it added.

Fortune Reit gained three HK cents yesterday to close at HK$3.77.