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Does Fortune REIT Have a Resilient Property Portfolio?

Fortune REIT (SGX:F25U) is a dual-listed REIT that holds a portfolio of 17 retail properties in Hong Kong. It comprises a total of 3.18 million square feet of retail space and 2,713 car parking spaces.

At its current price, the REIT has a trailing dividend yield of more than 5% and trades at a wide discount to book value. The current valuation of the REIT does look attractive.

Having said that, it is important to dig a little deeper to find out whether the REIT can sustain and deliver consistent returns to unitholders. With that in mind, I will take a look at three key aspects of the property portfolio that can help us paint a clearer picture of the REIT.

Portfolio occupancy

The portfolio occupancy is an important metric to find out if the REIT can attract tenants to its locations. Fortune REIT has consistently done well in this regard, occupancy each year hovering between 96% and 99%. As of 31 December 2017, Fortune REIT continued to maintain its high portfolio occupancy rate at 98.1%.

More impressively, this comes amidst a difficult period for retail, where the disruption of e-commerce has affected some offline businesses. Despite the headwinds, Fortune REIT has continued to maintain its high occupancy, reflecting the resilience and attractiveness of its retail space.

Rental reversion rate

Rental reversion rate is the change in rents upon renewal of a lease. It is an indication of the pricing power of the landlord and how easily the REIT can increase its rent.

Fortune REIT had a rental reversion rate of 12.8% in 2017. The REIT has also managed to consistently post positive rental reversion in the past, increasing net property income in the process and helping to deliver steadily growing distributions to unitholders each year.

Lease expiry profile

Finally, the lease expiry profile provides investors with some idea of how long the current leases run for. The REIT has a well spread out lease expiry profile with 39.1% of leases expiring this year, 28.3% expiring next and 29.1% expiring in 2020.

Fortune REIT also has a high tenant retention rate of 78%, suggesting that most tenants are willing to renew their contracts, even as the REIT increases its prices each year.

The Foolish bottom line

Organic growth is a vital ingredient for a REIT to be able to deliver higher dividends to its unitholders over the years. Fortune REIT has shown through the years that its properties are resilient to the macroeconomic conditions. The REIT has not only consistently maintained a high occupancy rate, but it has also increased the rent on its properties over the years.

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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 Jeremy Chia doesn’t own shares in any companies mentioned.