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Wednesday, September 8, 2010

About a Reit - Fortune Reit ِis almost a Hong Kong Reit

Overview
Fortune Reit is unique among the S-REITs. Its uniqueness is not because all its properties are in a single foreign country, i.e. Hong Kong. In fact, there are a number of S-REITs with such a profile. For examples, we have Lippo Maple Investment Trust with all its shopping malls located in Indonesia. We have Saizen Reit with all its residential properties in Japan. We have CapitaRetail China Trust with all its retail properties in China. We also have Ascendas India Trust, not officially a S-REIT but a property business trust, with all its industrial properties in India.

So what are its main differences from the rest of the 'foreign' Reits and also the S-Reits sector as a whole?

Main Differences
Following are some of its main differences from the rest at the time of this writing:
  1. It is the first and only S-Reit to be dual-listed. It is currently listed in both SGX and the Stock Exchange of Hong Kong (SEHK).
  2. It is the only S-Reit to be traded in a foreign currency (HKD) in SGX.
  3. It is the only S-Reit to distribute its dividend in a foreign currency (HKD).
Dual Listing
Fortune Reit was officially dual listed in SEHK on 20 Apr 2010. The plan to dual list was announced on 24 Feb 2010. Prior to the announcement, Fortune Reit was trading around 3.00 HKD. Following the announcement, the price has went up sharply to above 3.70 HKD, breaking the 52 weeks high a number of times. It peaked around 3.83 HKD on the day it was dual listed. Trading volume was also much high during that period of time.

However, the boost to the share price was only apparent from the day of announcement of the planned dual listing, until the day it was dual listed. After the dual listing, there has not been much significant upwards movement to the share price, which has more or less stabilized at the range of 3.60 to 3.70 HKD at the time of this writing.

Trading in HKD
Trading in a foreign currency can be a double edged sword. If HKD strengthens against SGD, your capital gain can be magnified. But if the contrary happens, your loss can also be magnified. Following is my personal experience:

In July 2010, i bought in some units of Fortune Reit at 3.520 HKD, wanting to take advantage of the imminent semi-annual distribution some time in August. The exchange rate then for SGD vs HKD was 0.17885. So effectively I was paying SGD 0.630 per unit. I sold away the units upon XD in August 2010 at 3.600 HKD. I am not a currency expert and I do not really follow the trends of the exchange rate. So I have happily thought that other than receiving the DPU of 0.1227 HKD, I have further achieved a capital gain of 0.080 HKD per unit, or 80 HKD per lot of 1000 units. Unfortunately, during the one month period the SGD has strengthened a lot vs the HKD, and the exchange rate when I sold the units was 0.17325, which converts to about SGD 0.624. So i was actually losing money in SGD terms, although the in HKD terms I was making money. Of course overall I have still gained when the DPU was factored in, but the capital loss has eaten into my dividend profits.

DPU in HKD
Similar to the case of trading in foreign currency, the distribution in foreign currency can either boost or erase the DPU in SGD terms.  As mentioned above, I have received the semi-annual distribution of 0.1227 HKD per unit in August 2010. But with the weakening of the HKD against SGD, my expected DPU in SGD terms has also been reduced.

Impact of Exchange Rate
I have briefly traded units of Fortune Reit during its rights issue period around Sep to Oct 2009. The exchange rate then was around 0.1850. Compare to the exchange rate of 0.17325 in Aug 2010, it is a rather significant drop of about 6.5%. Of course the price of Fortune Reit happened to increase much more than 6.5% during this period of time, so overall it is still a gain if you have bought around Sep to Oct 2009. But 6.5% is still quite a significant erosion of the profits. Imagine if the price has gone south, the loss would have been much more. Even if the price has remained stagnant, you will still be losing money in SGD terms.






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