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What Investors Need To Know About Fortune REIT’s Third-Quarter Results

Fortune Real Estate Investment Trust (SGX: F25U), which owns 17 retail properties in Hong Kong, furnished its third-quarter results after market closed on Tuesday. ARA Asset Management Limited (SGX: D1R) is the manager of Fortune REIT. ARA released its latest results on Monday.

For the quarter, revenue and net property income went up 32% and 33% year-on-year to HK$416.6 million and HK$286.7 million, respectively. The better showing for the latest quarter was mainly due to additional income contribution from Fortune Kingswood,as well as strong rental growth across the entire portfolio. Fortune Kingswood was acquired in October last year.

Income available for distribution was HK$193.1 million, an increase of 25.9% compared to last year while distribution per unit (DPU) went up from 8.28 HK cents last year to 10.30 HK cents in the latest quarter.

For the nine months ended 30 September 2014, revenue was at HK$1.23 billion, 33.0% higher year-on-year. Net property income rose 32.8% year-on-year to HK$867.7 million. Strong rental reversions across the portfolio, satisfactory returns from the completed asset enhancement initiatives (AEI) and additional income contribution from Fortune Kingswood contributed to the uptick in revenue and net property income.

Income available for distribution grew 26.8% to HK$583.6 million while DPU was at 31.18 HK cents, an increase of 18.6% year-on-year.

Portfolio occupancy rate was 97.1%, as of the end of September 2014. The rate decreased from 99.1%, as of 30 June 2014, mainly due to the commencement of AEI works at Belvedere Square.

As of 30 September 2014, the gearing ratio was at 31.2%, an improvement from 32.7% seen on 31 December 2013. Net asset value per unit came in at HK$10.99, as of 30 September, an increase from HK$10.26 at the end of last year.

The AEI at Belvedere Square, which costs HK$80 million, is expected to be completed in phases throughout next year. Investors would be delighted to note that such AEIs can help to contribute to further revenue growth. As a case in point, CapitaMall Trust (SGX: C38U), Singapore’s largest retail REIT, completed AEI for its shopping malls of The Atrium@Orchard, and Bugis+ in 2012. Partly due to that, gross revenue for its financial year of 2013 was 10.2% higher year-on-year.

Units at Fortune REIT closed at HK$7.25 on Tuesday. It is trading at 0.66x its latest book value and has a distribution yield of 5.6%.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P owns shares in ARA Asset Management.