Fortune Real Estate Investment Trust’s Latest Earnings: Rising Fortunes?

Fortune Real Estate Investment Trust (SGX: F25U) released its fiscal fourth-quarter earnings report yesterday. The reporting period was from 1 October 2015 to 31 December 2015.

As of 31 December 2015, Fortune REIT’s portfolio consists of 17 retail properties with a gross rentable area of 3.18 million square feet. Fortune REIT’s portfolio has a diverse mix of tenants that deal with supermarkets, food and beverage, entertainment, education, and more.

Financial highlights

The following’s a quick summary on the REIT’s latest financial figures:

  1. Gross revenue rose to HK$1.88 billion in 2015, up 13.7% from the prior year.
  2. Net property income (NPI) followed suit with a 14% increase in 2015 to HK$1.32 billion.
  3. 2015’s distribution per unit (DPU) was 46.88 HK cents, a 12.5% increase from the 41.68 HK cents paid out last year.
  4. Fortune REIT’s properties were valued at HK$35.9 billion as of 31 December 2015. The REIT also reported an adjusted net asset value per unit of HK$12.76, up 7% from a year ago.

Beyond these, Foolish investors might also want to keep an eye on a REIT’s debt profile. The debt profile may provide clues on how a REIT is funded and its sensitivity to the interest rate environment. These are summarised for Fortune REIT below:

2016-01-22 Fortune REIT debt table
Source: Fortune REIT’s earnings report

Fortune REIT’s gearing and all-in cost of debt had very little change in 2015. Meanwhile, coverage against interest rate fluctuations (the percentage of borrowings hedged) had increased to 68% and that is a good development. The REIT also stated that its next refinancing round is in 2017.

Operational highlights

Fortune REIT’s strong results can be attributed to the opening of Laguna Plaza in January 2015 coupled with strong portfolio rental reversions. It also disposed of Nob Hill Square at a 48% premium to its book value.

Overall occupancy improved to 98.8%, up from 97.3% at the end of 2014. Fortune REIT’s portfolio currently consists of 1,396 tenants. The non-discretionary retail sector contributed to 60% of its gross rentable area.

The manager of Fortune REIT had these statements as part of its outlook for the future in the earnings release:

“The Manager remains mindful of the economic uncertainties associated with factors such as the softening of retail sentiment as well as the gloomy outlook on global economic growth. These factors are compounded by the anticipation of continued interest rate hikes. Nevertheless, Fortune REIT’s portfolio of private housing estate retail properties, which caters mainly to day-to-day shopping needs, tends to maintain a more resilient performance when compared to the overall fluctuations of market and economic conditions.

As there could be continuing pressure in this year on certain costs such as rising wages and other external factors, the Manager will closely monitor the operating expenses. Cost containment measures such as implementing energy-saving measures and reduction in wastage in operations and facilities will be continued in order to mitigate the impact from increased costs.

Looking ahead, the Manager is dedicated to drive revenue growth by implementing effective leasing and tenant repositioning strategy as well as AEIs [asset enhancement initiatives], while remaining closely attentive to investment opportunities for Fortune REIT’s long-term sustainable development.”

Foolish summary

Fortune REIT last traded at HK$7.68 on Thursday. This translates to a historical price-to-book ratio of 0.60 and a distribution yield of around 6.1%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.