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3 Things I Learnt From Fortune Real Estate Investment Trust’s Annual Report

Fortune Real Estate Investment Trust (SGX: F25U) has indeed been the apotheosis of consistency. The REIT, which invests primarily in Hong Kong suburban malls, has managed to increase its net property income for 15 consecutive years. Even more impressively, it has rewarded unitholders through higher distributions for the past eight years, with distribution per unit more (DPU) than doubling over that time frame.

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Source: Fortune REIT 2018 Earnings Presentation

As a unitholder of Fortune REIT, I like what I have seen so far. Fortune REIT recently released its annual report for 2018. Here are three interesting facts I learnt about the REIT from its annual report.

Disposal and major asset enhancement in 2018

In 2018, Fortune REIT delivered a 1.0% increase in distribution per unit. The fact that this was achieved despite the sale of one of its assets and the undertaking of a major asset enhancement initiative in its biggest asset makes the feat all the more impressive.

In February, the REIT sold Provident Square for HK$2.0 billion, with most of the proceeds used to pay down debt. As a result, Fortune REIT now has a gearing ratio of just 20.9% compared to 27.4% in 2017.

In addition, in June 2018, it commenced on the renovation of Fortune Kingswood, its largest asset. Upon completion, Fortune Kingswood is positioned to become a leisure and shopping destination for families and others.

Aiding tenants increase sales through technology initiatives

Fortune REIT managers have taken the initiative to try to help tenants grow their businesses. This is especially important for retail REITs as tenant sales and shopper traffic are inexplicably linked to the REIT’s rental income.

In 2018, Fortune Malls opened an official account on Mainland China’s largest social media platform, engaging followers and providing updates on the latest promotional and festive activities in all 16 Fortune Malls.

Portfolio increasing in value

Despite the sale of Provident Square in 2018, Fortune REIT’s valuation still increased by 8.2%, from HK$38.8 billion in 2017 to HK$42.0 billion in 2018. The increase was due to a revaluation gain of HK$4.2 billion during the year, which was calculated by an independent valuer, Knight Frank Petty Limited.

Together with the sale of Provident Square at 89% above its carrying book value, net asset value per unit rose a staggering 18.2% from the previous year to HK$16.61.

The Foolish bottom line

There are certainly many things to like about Fortune REIT. On top of its financial flexibility, the REIT also has an existing portfolio that has the capacity for organic growth. Fortune REIT managers also have a long track record of successful asset enhancement initiatives that have unlocked value for unitholders. All of which makes me confident that Fortune REIT will likely continue to provide shareholders with solid returns over the foreseeable future.

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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.