Fortune REIT - DBS Research 2018-06-20: Unlocking Mall’s Value 

Fortune REIT - DBS Vickers 2018-06-20:  unlocking Mall’s Value  FORTUNE REAL ESTATE INV TRUST SGX: F25U

Fortune REIT -  unlocking Mall’s Value 

  • Property enhancement works to unlock the value of Fortune Kingswood. 
  • Steady reversionary growth to sustain. 
  • BUY with HK$10.50 Target Price.  


  • Fortune REIT will embark on asset enhancement works on the west block of Fortune Kingswood in Tin Shui Wai shortly, which will be carried out in three phases with completion targeted for early 2020. 
  • Total capex is estimated at HK$150m. The supermarket tenant, which currently occupies c.57,000sf, will be downsized. Fortune REIT has secured tenants for half of the revamped area.
  • Despite the income shortfall during the period of renovation, this initiative should help turn Fortune Kingswood into a regional mall in the long run, enhancing its competitiveness. 
  • F&B tenants continue to perform well while home appliance retailers have shown signs of improvement of late. Rental reversion is therefore expected to stay healthy at 10-15% in FY18.
  • Following the loan repayment of HK$1.1bn using the proceeds from divestment of Provident Square, Fortune REIT’s gearing has improved to c.25%. Interest rate hedging ratio has edged down to 50% from Dec-17’s 60% with the expiry of interest rate swap.
  • With c.HK$900m cash on hand, Fortune REIT is exploring acquisition opportunities. But given low market yield for retail assets, it could be challenging to pursue yield accretive acquisitions. 
  • Fortune REIT offers distribution yields of 5.5-5.6% for FY18-19. Valuation remains attractive taking into account steady reversion growth and rental uplift led by asset enhancement initiative at Fortune Kingswood. 
  • BUY with DDM-based Target Price of HK$10.50. Interest rate hikes remains a key overhang on unit price. 

Jeff YAU CFA DBS Vickers | Ian CHUI DBS Vickers | Jason LAM DBS Vickers | https://www.dbsvickers.com/ 2018-06-20
SGX Stock Analyst Report BUY Maintain BUY 10.50 Down 10.68