Fortune Reit hires ANZ, DBS and Stanchart for loan

FORTUNE Real Estate Investment Trust (Reit) hired Australia and New Zealand Banking Group Ltd (ANZ), DBS Bank Ltd and Standard Chartered plc (Stanchart) to arrange and underwrite a HK$1.4 billion (S$233 million) three-year loan, according to a person familiar with the matter.

The three banks will begin marketing the facility to other lenders in January, said the person.

The loan comprises a HK$1.1 billion term loan and a HK$300 million revolving credit facility and pays a margin of 200 basis points over the Hong Kong interbank offered rate, according to a filing with the Hong Kong stock exchange. Proceeds of the term loan are for Fortune Reit’s intended acquisition of two retail properties in Hong Kong, Belvedere Garden Property and Provident Centre Property, purchased for HK$1.25 billion and HK$650 million respectively, according to the statement. The loan is secured by rentals, deposits, and proceeds from properties.

Fortune will also use an existing revolving credit facility of HK$970 million due 2016 to fund the acquisitions. That facility pays a margin of 91 basis points more than Hibor, according to data compiled by Bloomberg. ANZ, DBS and Stanchart were bookrunners on the existing HK$970 million facility, said the person yesterday.

Fortune has the equivalent of US$489 million in loans maturing before the end of 2016, according to data compiled by Bloomberg. — Bloomberg

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.

Fortune Reit Q1 DPU up 5.5%

Income available for distribution was HK$112.8m

SINGAPORE-LISTED Fortune Real Estate Investment Trust (Fortune Reit) yesterday reported distribution per unit (DPU) of 6.73 HK cents for the first quarter ended March 31, up 5.5 per cent from 6.38 HK cents for the corresponding period last year.

The DPU represents an annualised distribution yield of 7 per cent.

Income available for distribution was HK$112.8 million (S$17.8 million), up 6.2 per cent from HK$106.2 million a year earlier.

Total revenue saw a 4.6 per cent increase to HK$218.8 million, attributed mainly to the improved performance of the property portfolio.

Net property income rose 3.3 per cent to HK$161 million.

The occupancy rate across Fortune Reit’s portfolio of 14 retail malls stood at 97.8 per cent as at March 31, 2011.

Passing rent increased by 7.6 per cent year on year to HK$29.40 per square foot, while rental reversions for renewals stood at 17.4 per cent.

Fortune Reit refinanced its entire loan facilities of HK$3.1 billion. The new facilities, at an aggregate principal amount of HK$3.8 billion, comprise a HK$2.83 billion term loan facility and a HK$790 million revolving credit facility.

Planned asset enhancement initiatives at City One Plaza is expected to commence in the third quarter of this year. The project deadline is targeted for end 2012. The cost of the project is estimated to be HK$100 million.

With Hong Kong’s GDP increasing 6.8 per cent in 2010 and forecast to expand by another 4 to 5 per cent in 2011, this augurs well for consumer confidence, said Fortune Reit in a statement yesterday.

Moving forward, ARA Asset Management (Fortune) will focus on retaining quality tenants particularly in Ma On Shan Plaza and The Metropolis Mall, where some 50 per cent of the tenants are up for renewal this year.

Fortune Reit closed down HK$0.01 yesterday at HK$3.86.

Fortune Reit Q4 DPU up 10.7%

Income gets boost from higher occupancy and rental rates

FORTUNE Real Estate Investment Trust (Fortune Reit) saw its fourth-quarter payout rise 10.7 per cent year-on-year, helped by higher occupancy and rental rates.

The Reit, which is listed both in Hong Kong and Singapore, reported yesterday, after the market closed, that distribution per unit (DPU) rose to 6.32 HK cents, from 5.71 HK cents. Distributable income for the October-December period climbed 11.3 per cent to HK$105.7 million (S$17.4 million) from HK$94.9 million a year earlier.

Total revenue for Q4 rose 9.1 per cent year-on-year to HK$217.7 million, while net property income climbed 10.7 per cent to HK$152.4 million.

Reit manager ARA Asset Management (Fortune) Ltd said yesterday that it will continue to drive revenue growth by embarking on asset enhancement initiatives.

And with leases that account for more than 30 per cent of its leased gross rentable area and gross rental income expiring this year, it will ‘continue to implement effective leasing and tenant repositioning strategies’.

In particular, it will focus on Ma On Shan Plaza and The Metropolis Mall, where around 50 per cent of tenancies will be up for renewal this year.

‘Leveraging on a strong balance sheet and capital structure, the manager will continue to look for acquisition opportunities in line with addressing the long-term interests of Fortune Reit’s unit-holders,’ it added.

Fortune Reit holds 14 retail properties in Hong Kong under its portfolio such as City One Shatin Property, Ma On Shan Plaza, Metro Town, The Metropolis Mall and Waldorf Garden Property. Together, the 14 properties provide two million sq ft of retail space and 1,660 car parking lots.

The occupancy rate of its properties climbed to a record high of 98.7 per cent at the end of last year, while passing rent also hit a record HK$28.7 per sq ft as at Dec 31.

For the year, distributable income jumped 20.3 per cent to HK$406.5 million. But DPU dropped to 24.35 HK cents from 30.20 HK cents in FY2009 because of an enlarged unit base as a result of a rights issue. Fortune makes distributions on a half-yearly basis. The full-year DPU, which comprises an interim DPU of 12.27 HK cents and a final DPU of 12.08 HK cents, works out to a yield of 6.1 per cent based on the unit’s average closing price of HK$4.01 as at Dec 31, 2010.

Full-year total revenue increased 19.4 per cent to HK$837.3 million. Net asset value per unit at Dec 31, 2010, was HK$6.18, up from HK$5.32 a year earlier.

Fortune Reit units closed unchanged at HK$4.05 yesterday.

A safe play in a volatile market

At a Glance

• FY09 result was slightly above our expectation for stronger property income and lower interest expense.
• Earnings outlook should remain stable offering attractive yield
• Maintain BUY, TP raised to HK$3.71.

Result Highlights

FY09 distribution income grew 12% to HK$338m, slightly ahead of our estimate, because of stronger-than-expected property income. But DPU fell 18% to HK$0.302 as Fortune REIT financed property acquisitions primarily through rights issue.

Total revenue grew 10% to HK$701m, driven by maiden contribution from three newly acquired rental properties and improved performance of its existing portfolio. There was a modest 4.2% rental reversion for renewals. However, net property income grew only 7%, as cost-to-income ratio inched up to 27.3% from 25% the year before. Portfolio occupancy reached a new high of 96.4% at Dec 09 after vacancies at Smartland and The Household Center improved considerably in 4Q09. Interest expense fell 13% to HK$88m on lower borrowing costs, despite additional loans raised to partly fund the acquisitions. Gearing remains low at 23.7% because of larger shareholders’ equity led by revaluation surplus on investment properties. Fortune REIT has room to make yieldaccretive acquisitions worth up to HK$2.1bn without tapping the equity market, before its gearing hits the 35% ceiling limit.

Recommendation

In 2010, Fortune REIT plans to revamp and reposition City One Shatin Property to give the mall a new image and strengthen its retail offerings. Unit price of Fortune REIT has rebounded 24% from the low in September. Despite this, it still offers distribution yield of 7.4% for FY10 and 7.7% for FY11. In view of its resilient earnings and better trading liquidity postacquisition, Fortune REIT would be a safe play in a volatile market. We roll forward our valuation to FY11, with DDMbased target price of HK$3.71. Maintain BUY.