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12 Things To Know About Fortune REIT Before You Invest

4 min read

Fortune REIT is a dual-listed REIT (SGX: F25U) that trades on the Stock Exchange of Hong Kong and Singapore Exchange (although it will eventually delist from the SGX in October 2019). The REIT currently owns a portfolio of 16 retail properties located in Hong Kong worth HK$42.0 billion.

I recently received a copy of Fortune REIT’s latest annual report and I’ll be giving an update on Fortune REIT’s latest financial results, long-term performance, and valuation. Here are 12 things to know about Fortune REIT before you invest.

Disclaimer: This is not a sponsored post. Opinions expressed in the article should not be taken as investment advice. Please do your own due diligence.


Portfolio Value

Fortune REIT’s portfolio value has grown at a compounded annual growth rate (CAGR) of 15.5% over the past 10 years.

It has grown from a portfolio of 14 properties worth HK$11.5 billion in 2009 to 16 properties valued at HK$42.0 billion as at 31 December 2018.

This is due to capital appreciation of its existing properties and the acquisition of new properties such as Belvedere Square, Fortune Kingswood, and Laguna Plaza during the period.

Fortune REIT Total Portfolio Value
Source: Fortune REIT Annual Reports

The five biggest properties contributed to 69.6% of Fortune REIT’s net property income (NPI) in 2018:

PropertyNet Property Income (HK$ millions)Percentage of Total NPI
Fortune City One271.818.6%
Fortune Kingswood271.318.5%
Ma On San Plaza231.515.8%
Metro Town134.39.2%
Belvedere Square109.77.5%
Fortune REIT's 11 Other Properties445.730.4%

Source: Fortune REIT Annual Reports

Fortune City One

Fortune City One is one of three flagship malls owned by Fortune REIT.

As of 31 December 2018, it is valued at HK$8.8 billion and has a 99.3% occupancy rate. The mall’s NPI has grown at a CAGR of 4.9% over the last 10 years, from HK$177.0 million in 2009 to HK$271.8 million in 2018.

Fortune City One Net Property Income
Source: Fortune REIT Annual Reports

Fortune Kingswood

Fortune Kingswood is another flagship mall owned by Fortune REIT.

As of 31 December 2018, it is worth HK$8.3 billion and has an 88.4% occupancy rate, a fall from 95.8% in 2017. This was mainly due to asset enhancement initiatives (AEI) which commenced in June 2018. The mall’s NPI of HK$271.3 million 2018 was its first dip in five years.

Fortune Kingswood Net Property Income
Source: Fortune REIT Annual Reports

Ma On Shan Plaza

Ma On Shan Plaza is valued at HK$6.1 billion and has a 92.2% occupancy rate as of 31 December 2018.

The mall’s NPI has grown at a CAGR of 7.9% over the last 10 years, from HK$117.1 million in 2009 to HK$231.5 million in 2018.

Ma On Shan Plaza Net Property Income
Source: Fortune REIT Annual Reports

Metro Town

Metro Town is worth HK$3.9 billion and has a 99.2% occupancy rate as of 31 December 2018.

The mall’s NPI has grown at a CAGR of 7.8% over the last 10 years, from HK$73.4 million in 2010 to HK$134.3 million in 2018.

Metro Town Net Property Income
Source: Fortune REIT Annual Reports

Belvedere Square

Belvedere Square is valued at HK$2.7 billion and has an occupancy rate of 99.8% as of 31 December 2018.

Its NPI has grown at a CAGR of 13.7% over the last six years, from HK$50.8 million in 2012 to HK$109.7 million in 2018.

Belvedere Square Net Property Income
Source: Fortune REIT Annual Reports

Revenue And Distributable Income

Overall, Fortune REIT’s revenue and distributable income have grown at a CAGR of 12.0% and 12.6% respectively over the last 10 years.

This was achieved by positive rental reversions and the acquisition of new properties during the period.

As of 31 December 2018, Fortune REIT has an overall portfolio occupancy rate of 93.1%. The REIT has close to 1,300 leases and its top 10 tenants account for 27.7% of gross rental income.

Fortune REIT Group Results
Source: Fortune REIT Annual Reports
Fortune REIT Rental Reversions
Source: Fortune REIT Annual Reports

Net Asset Value

Net asset value (NAV) per unit has increased from HK$5.32 in 2009 to HK$16.61 in 2018 – a CAGR of 13.5%.

Gearing ratio lowered from 27.4% in 2017 to 20.9% in 2018 and Fortune REIT has no refinancing needs until 2020. Fifty-seven percent of its debt has been hedged at fixed interest rates and average cost of debt is 2.89% per annum. Fortune REIT has a debt headroom of HK$18.7 billion which it can use to invest in new properties or AEIs to raise the value of a property.

Asset Enhancement Initiatives (AEI)

In June 2018, Fortune REIT commenced AEI at the West Block of Fortune Kingswood.

Costing a total of HK$150 million, the mall aims to introduce more F&B and retail offerings upon its completion at end-2019. A revitalisation plan to add new lifestyle & entertainment elements at the East Block is also being planned and will come next.

Land Tenure Expiry

Fortune REIT’s entire property portfolio is centred in Hong Kong where land tenures are set to expire on 30 June 2047.

The exceptions are Metro Town and Hampton Loft where their land tenures will expire on 10 February 2053 and 12 December 2049 respectively instead. It remains to be seen whether the Chinese government will extend the land leases in Hong Kong.

P/B Ratio

As of 31 December 2018, Fortune REIT has a NAV per unit of HK$16.61. Based on its unit price of HK$10.78 (as at 16 July 2019), its current P/B ratio is 0.65, which is marginally above its 10-year average of 0.62.

Fortune REIT P/B Ratio
Source: Fortune REIT Annual Reports

Distribution Yield

Fortune REIT has paid a growing distribution per unit over the last 10 years, from 30.2 Hong Kong cents in 2009 to 51.3 Hong Kong cents in 2018.

Fortune REIT DPU
Source: Fortune REIT Annual Reports

If the REIT maintains its distribution, its current yield is 4.75%, the lowest in 10 years.

Fortune REIT Gross Dividend Yield
Source: Fortune REIT Annual Reports

The Fifth Perspective

Fortune REIT has delivered steady growth in revenue, NPI, and distributions over the last 10 years.

Looking at its current P/B, it may seem that the REIT is undervalued as it is trading at only 0.66 times its book value. However, looking at Fortune REIT’s historical P/B will tell you that it persistently trades below book value and a P/B below 1.0 should not be construed as a discount.

It may be more useful to compare Fortune’s current yield with its historical averages. At a 4.75% yield currently – a 10-year low – the REIT looks expensive right now.

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Stock Discussion on Fortune REIT


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