Fortune Reit sells Provident Square in Hong Kong for HK$2b to repay loan

SINGAPORE - Fortune Reit on Tuesday (Dec 19) evening said it has signed an agreement with an unnamed buyer to dispose of Provident Square in Hong Kong, which comprises of the shopping centre and the sub-basement of the entire residential and commercial development known as Provident Centre.

The property is to be sold for HK$2 billion (S$345 million), plus the amount of net current assets or minus the amount of net current liability of the holding company of the property.

The buyer was not named. The Reit (real estate investment trust) manager said: "So far as the manager is aware, the purchaser is a company incorporated in the British Virgin Islands and is primarily engaged in property investment, and is a special purpose vehicle controlled by two property real estate funds."

The acquisition value represents a premium of about 88.5 per cent over the appraised value of HK$1.061 billion as at end-November 2017.

The manager added: "The disposal is accretive to the net asset value of Fortune Reit. Further, the disposal is in line with the manager's strategy to improve operational efficiency and performance of Fortune Reit's portfolio and recycle capital for value creation to the unitholders."

Upon completion of the disposal, Fortune Reit expects to record a gain of about HK$921 million from the disposal.

However, the disposal will also lead to a slightly lower net property income and distribution for Fortune Reit, it said.

The manager plans to use the net proceeds for general corporate purpose and working capital, including repayment of an existing bank loan amounting to HK$1.1 billion.

Based on the consolidated financial position of Fortune Reit as at June 30, 2017, the pro-forma gearing ratio of the Reit is anticipated to decrease from 28.4 per cent to 25.6 per cent after adjusting for the repayment of the bank loan.

The property has a gross rentable area of about 180,238 square feet. Its occupancy rate was 94 per cent as at June 30, 2017.

The net property income of the property for the six months ended June 30, 2017 was HK$18.44 million - or about 2.5 per cent of the Reit's net property income for the first-half 2017.

However, the holding company of the property made net losses after taxation of HK$12.3 million for fiscal 2016.

The disposal is not required to be approved by unitholders under the Reit code.