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Reits as a source of stable income

Retail property prices have "weathered the worst" and are at low valuations, according to the head of Hong Kong's oldest Reit.
Justina Chiu, Fortune Reit

“Reits [real estate investment trusts] offer attractive yields in a low interest rate environment, and should benefit from a cyclical recovery in Asian economies,” Justina Chiu, chief executive officer of Fortune Reit, told a webinar hosted by Eastspring Investments.

The HK$40.327bn ($5.2bn) Fortune Reit holds a portfolio of 16 private housing estate retail properties in Hong Kong, comprising three million square feet of retail space and 2,713 car parking spaces.

“The shopping malls are all in residential areas and are dependent on domestic consumption, which makes them more resilient than mainland tourists, who accounted for about one-third of retail sales in 2018,” said Chiu.

Despite the impact of the Covid-19 pandemic on retail businesses, the Reit has managed to maintain 95% portfolio occupancy rate and retained 77% of its tenants, she said.

Its current distribution yield is 6.5%, according to its website.

Using the MSCI AC Asia Pacific Reit index as a proxy, and looking at its sub-industry breakdown, the forward 12-month dividend yield for retail Reits is 5.34% as of 30 September 2020, which is higher than the 4.72% at the start of the year, according to Chiu.

Several firms have offered or prepared income products this year that have Asian Reits in their investment mandates.

These include Eastspring, Schroders and Allianz Global Investors, as well as digital wealth management firm Syfe, which collaborated with Singapore Exchange to launch a Reits portfolio that invests in SGX’s iEdge S-Reit 20 Index.

Most recently, UOB Asset Management launched the United S-Reit Income Fund to retail investors in Taiwan, which will invest at least 60% of its assets in Singapore Reits.

Set up in 2003, the Fortune Reit was the first to hold assets in Hong Kong and is listed on the main board of the Hong Kong Stock Exchange.

The tenants of its properties range from food & beverages outlets to services & education, supermarkets, banks and wet markets. The majority of their businesses are providing necessities to local residents, so the portfolio is characterised by continuity.

“Around 80% of our marketing budget this year has been spent on promoting our tenants’ businesses,” said Chiu.

Yet, she also identifies four major trends in Hong Kong’s food & beverages sector, which should persist despite the effect of coronavirus on social behaviour.

These include the rising popularity of luxury fine dining, the growth of specialist restaurants catering for the young and typically managed by local chains, “grab-and-go” food counters, and coffee and bubble tea shops.

“The death of the Asian shopping mall culture, predicted by some commentators as people have been forced to turn to e-commerce, is highly unlikely,” said Chiu.

Fortune Reit Portfolio

Source: Fortune Reit, 30 June 2020.

Part of the Mark Allen Group.