Broker's take: Some S-Reits may be hit by Shenzhen-Hong Kong travel restrictions

S-REITS with an exposure to the Hong Kong retail sector, such as Mapletree Greater China Commercial Trust (MGCCT) and Fortune Reit, may be affected by lower tourist numbers if a proposed move to limit mainland Chinese visitors in Hong Kong comes to pass, OCBC Investment Research said in a broker report on Monday.

Reuters reported over the weekend that China will limit visits by Shenzhen residents to neighbouring Hong Kong. It cited Michael Tien, a Hong Kong member of China's Parliament, the National People's Congress, as saying that Shenzhen authorities would soon restrict its residents to one visit to Hong Kong per week, from an unlimited number of daily trips.

OCBC's report said: "We believe this new ruling, if officially passed, may impact S-Reits which have exposure to the Hong Kong retail sector."

MGCCT's Festival Walk retail mall has direct rail connectivity to the Shenzhen border to cater to the shopper traffic from mainland China. According to MGCCT's latest annual report, tourists accounted for about 20 per cent of the total footfall to the mall, of which roughly eight in 10 are from mainland China.

"On a positive note, we estimate that the gross turnover rental component of MGCCT's total revenue is less than 5 per cent," OCBC said.

For Fortune Reit, its Fortune Kingswood shopping mall is located close to the border between Hong Kong and Shenzhen. This mall contributed 18.8 per cent of Fortune Reit's gross revenue in fiscal 2014, OCBC said. "Fortune Reit's business model is based on a high base rental modus operandi, and gross turnover rents form less than 5 per cent of its total gross revenue."