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OCBC Investment Research 2015-07-28: Fortune REIT - Solid performance. Maintain HOLD.

Fortune REIT: Solid performance 


 2Q15 DPU jumped 11.9% YoY 
 Robust rental reversion of 22.1% 
 Occupancy rate of 97.3% 


2Q15 results within expectations 


  • Fortune REIT reported a good set of 2Q15 results which met our expectations. 
  • Revenue of HK$463.8m represented an increase of 13.2% YoY, while DPU jumped 11.9% to 11.75 HK cents. 
  • This was driven by robust organic growth and additional income contribution from Laguna Plaza which was acquired in Jan this year, but partially offset by the divestment of Nob Hill Square in Apr. 
  • For 1H15, Fortune REIT’s gross revenue rose 13.4% to HK$922.6m and constituted 50.8% of our FY15 forecast. 
  • DPU of 23.38 HK cents was higher by 12.0% and formed 51.5% of our full-year projection. 


Operating metrics showcase resiliency 


  • As at 30 Jun 2015, Fortune REIT’s occupancy rate stood at a healthy 97.3%, despite frictional vacancies from its ongoing asset enhancement initiatives. 
  • Average rental reversion of 22.1% was achieved for 1H15, bringing its average portfolio passing rent up to HK$38.40 psf per month. 
  • Fortune REIT’s portfolio was independently valued at HK$35.2b (as at 30 Jun 2015), a boost of 7.7% from Dec 2014’s valuation. 
  • This was contributed by an increase in valuation for all its assets, coupled with the addition of Laguna Plaza (valued at HK$2.1b), but partially offset by the disposal of Nob Hill Square. 
  • Its portfolio weighted average retail cap rate remains unchanged at 4.7%. 


Maintain HOLD 


  • In terms of financial position, Fortune REIT’s gearing stood at 30.6%, with no refinancing needs until 2016. 
  • We like Fortune REIT for its strong management team and resilient portfolio, as close to 60% of its gross rental income is derived from the non-discretionary retail sector. 
  • We maintain our HOLD rating and fair value estimate of HK$8.04 on the stock as we believe valuations are fair. 


(Wong Teck Ching Andy)

Source: http://www.ocbcresearch.com/



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