Prosperity REIT is a HKEX-listed REIT which owns a portfolio of seven prime real estates in the decentralised business districts in Hong Kong. Today, as of 29 April 2019, Prosperity REIT is worth HK$ 5.04 billion in market capitalisation. Here, in this article, I’ll cover its latest financial results and valuation figures.

Thus, here are 10 things to know about Prosperity REIT before you invest:

  • Portfolio Valuation
    Prosperity REIT has achieved a CAGR of 8.5% in portfolio valuation over the past 10 years. It had increased from HK$ 5.26 billion in 2009 to HK$ 10.99 billion in 2018. The increase is directly contributed by continuous capital appreciation achieved by its existing properties in that period as the REIT is less active in the acquisition of new investment properties as its number of properties had maintained at 7 – 8 throughout the period.

Source: Prosperity REIT’s Annual Reports

Breakdown of Revenue
The following is a list of properties owned by Prosperity REIT and sales breakdown for 2018:


No.

Properties
Revenue 2018 (HK$ ‘000)Revenue 2018 (%)
1The Metropolis Tower126,32428.3%
2Prosperity Millennia Plaza94,65421.2%
39 Chong Yip Street40,4729.1%
4Prosperity Place75,69216.9%
5Trendy Centre52,39911.7%
6Prosperity Centre (Portion)40,6809.1%
7New Treasure Centre (Portion)16,5933.7%
Prosperity REIT’s Total Revenues446,814100.0%


Source: Prosperity REIT’s Annual Report 2018

  • Group Revenues
    Prosperity REIT has achieved a CAGR of 6.0% in group revenue, growing from HK$ 263.6 million in 2009 to HK$ 446.8 million in 2018. This is due to high occupancy rates and positive rental reversions attained by all of the seven properties over the last 10 years.

Source: Prosperity REIT’s Annual Reports

  • Distributable Income
    Prosperity REIT has achieved a CAGR of 7.1% in distributable income. It has grown from HK$ 145.4 million in 2009 to HK$ 268.9 million in 2018. This is attributed to higher revenues stated in Point 3 and having itself a stable cost-to-income ratio of 20 – 25% throughout the 10-year period.

    Its distribution per unit (DPU) increased from 10.98 HK cents in 2009 to 18.10 HK cents in 2018.

Source: Prosperity REIT’s Annual Reports

  • Balance Sheet Strength
    As of 31 December 2018, Prosperity REIT has reported having as much as HK$ 2.31 billion in total borrowings and as much as HK$ 11.39 billion in total assets. Thus, its gearing ratio is 20.6%. It is a continuous decline from 33.3% in 2009 and currently the lowest in the 10-year period. The borrowings are unsecured 5-Year Term Loans with details as followed:

    – HK$ 1.54 billion at a floating interest rate of HIBOR + 0.82% a year.
    (Repayable in Full on 30 November 2022)

    – HK$ 0.80 billion at a floating interest rate of HIBOR + 1.05% a year.
    (Repayable in Full on 31 August 2022)

    As of 31 December 2018, the interest costs for around 50% have been hedged through interest rate swaps and cap.


Source: Prosperity REIT’s Annual Reports

  • Net Asset Value (NAV) per unit
    Prosperity REIT has achieved a CAGR of 10.5% in NAV per unit, growing from HK$ 2.34 in 2009 to HK$ 5.74 in 2018. This is attributed to growth in portfolio valuation during the 10-year period.

Source: Prosperity REIT’s Annual Reports

  • Latest Development
    On 30 April 2018, a major tenant of The Metropolis Tower had vacated a space amounting to 20.5% of the building’s total Gross Rentable Area (GRA). It caused a fall in revenue and net property income (NPI) for The Metropolis Tower in 2018 as the tenant has accounted for 19.0% of The Metropolis Tower as at 31 December 2017.

    Fortunately, the increase in revenue and NPI from the rest of Prosperity REIT’s properties exceeded the fall from the Metropolis Tower in 2018.

    As of 31 December 2018, Prosperity REIT has secured tenancies from a diverse range of tenants for the majority of its vacated spaces. This caused the occupancy rate of the Metropolis Tower to be uplifted to 99.2%.


  • Major Unitholders of Prosperity REIT
    As of 31 December 2018, CK Asset Holdings Ltd (CK Asset) is the largest unitholder of Prosperity REIT. It holds its interests through two indirect wholly-owned subsidiaries as followed:

    – Total Win Group Limited: 11.87%
    – Wide Option Investments Limited: 6.65%


    ARA Asset Management (Prosperity) Limited has 0.86% unitholdings in Prosperity REIT. ARA is presently the REIT manager of Prosperity REIT.

    The remaining unitholdings are held by public investors.


  • P/B Ratio
    As of 29 April 2019, Prosperity REIT is trading at HK$ 3.38 per share. In 2018, Prosperity REIT has net assets of HK$ 5.74 per share. Thus, it has a current P/E Ratio of 0.59, slightly above its 10-Year Average of 0.55.
  • Dividend Yields
    In 2018, Prosperity REIT has paid out 18.10 HK cents in DPU. Hence, if it is able to maintain its DPU at 18.10 HK cents, its current dividend yields is 5.36% per annum based on its current price of HK$ 3.38 per unit. It is below its 10-year average of 6.46% per annum presently.


VIA’s Verdict

Overall, Prosperity REIT has delivered stable and consistent growth in revenues, NPI, distributable income, and DPU to its unitholders for the past 10 years. This had caused sustainable growth in its unit price, which in turn, has resulted in as much as 10.88% in CAGR in its market capitalisation.


Source: Google Finance

At current valuations, it is trading at:

– P/B Ratio: 0.59 (above average)

– Current Dividend Yield: 5.36% (below average)

So, would you invest in Prosperity REIT? Please leave your comments below.

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