How Well Has Fortune REIT Managed Its Debt?

Asia’s first cross-border REIT, Fortune REIT  (SGX: F25U), owns a portfolio of 17 shopping malls in Hong Kong. The portfolio collectively comprises more than 3 million square feet of retail space and 2,713 car park lots. Some of the malls it owns are Fortune City OneFortune Kingswood and Ma On Shan Plaza.

In an earlier article, I took a look at the property profile of the REIT. Here, I will take a closer look at the trust’s debt management.

Gearing ratio and debt maturity

As of 31 December 2017, Fortune REIT had a gearing ratio of 28.4%. As a point of comparison, it currently has one of the lowest gearing ratio among all REITs in Singapore. As such, Fortune REIT still has plenty of debt headroom to fund further acquisitions.

The REIT has also recently managed to take advantage of the liquidity in Hong Kong to refinance its loans. After the latest round of refinancing, the REIT has an average debt maturity of 3.6 years.

Borrowing costs

So far, the REIT has been prudent in managing its interest rate costs. As of 31 December 2017, Fortune REIT had an all-in financing cost of 2.47% per annum. It also has no refinancing needs until 2019.

Moreover, Fortune REIT had 60% of its borrowing hedged and is, therefore, partially covered from any interest rate fluctuation risk.

Interest cover

Finally, the interest cover ratio gives investors an idea of how easily the REIT can pay off its loan expenses through its income. It is calculated by dividing the net property income by interest expense.

In 2017, Fortune REIT had an interest coverage ratio of 5.43. This is within safe levels and gives the REIT ample wiggle room to increase its debt load in the future.

The Foolish bottom line

From the looks of it, Fortune REIT has a solid balance sheet and has managed its debt very well. Together with its stellar line-up of properties and history of sustainable growth, the future certainly looks bright for the REIT and its unitholders.

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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.