The Motley Fool

Could Fortune REIT Be A Millionaire Maker?

Contrary to popular belief, real estate investment trusts or REITs are not merely investments that can provide a consistent income.

They can also double up as growth investments with the propensity to appreciate in value. Fortune Real Estate Investment Trust (SGX: F25U), which invests primarily in shopping malls in Hong Kong, is a case in point.

Since its listing in Singapore, Fortune REIT has gone from strength to strength, increasing its distribution per unit each year. Consequently, the market has rewarded the REIT by pushing up its unit price by almost 100%. If you had invested in the REIT since its listing, your investment would have returned more than 200% during that 15-year span. Not too shabby.

More importantly, Fortune REIT has continued to deliver strong growth over the more recent history. In its last financial year, Fortune REIT’s revenue grew 2.8% from a year ago. Likewise, distribution per unit again expanded by 3.1%. On top of that, there are a few more positive trends that suggest that the REIT’s future continues to look bright. Here are three reasons why I believe investors can make a fortune from Fortune REIT.

Low gearing ratio

Fortune REIT has one of the lowest gearing ratios among REITs listed in Singapore. As of 31 December 2017, it had a gearing ratio of just 27.4%. This is well below the regulatory cap of 45% and is the second lowest gearing among Singapore REITs.

The low gearing ratio provides it debt headroom of HK$12.7 billion which can be used to fund yield-accretive acquisitions. On top of that, the REIT also announced that it has agreed to divest Provident Square. If the sales proceeds are used to pare down debt, it will further improve the group’s gearing ratio and give it more headroom to fund more acquisitions in the future.

Hong Kong retail sales on the uptrend

2017 saw retail sales pick up in Hong Kong, following a minor contraction between 2014 and 2016.

In 2017, total retail sales climbed 1.8%, while restaurant receipts for the first nine months of the year improved by 4.4%. Non-discretionary retail also increased by 1.5%. Improved tenant sales will have a direct impact on Fortune REIT’s ability to grow its rental prices in the future. Management expects that the growth in tenant sales to continue to next year and will start to gain further momentum.

High rental reversions recorded in 2017

Finally, the REIT managed a positive rental reversion of 12.8% for 2017. This is an impressive increase in rent and will provide organic income growth for the future. Notably, the rental reversions had accelerated from an already strong 10.7% reversion rate recorded in the first half of 2017 to the full-year record of 12.8%.

The positive rental reversion momentum can most likely be carried forward to the coming year and provide visible income growth for the foreseeable future.

The Foolish bottom line

Fortune REIT has been one of the best-performing REITs since its listing. A buoyant Hong Kong property market and strong retail scene have both contributed to its growth. Furthermore, the REIT has managed its finances prudently and continues to have the financial muscle to fund more acquisition which could fuel growth for many years to come.

Meanwhile, there are 28 surprising and important things we think every Singaporean investor should know--and we've laid them all out in The Motley Fool Singapore's new e-book. Packed with information and insights, we believe this book will help you be a better, smarter investor. You can download the full e-book FREE of charge--simply click here now to claim your copy.

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.